Europe is trying to reduce its dependence on Russian gas

FRANKFURT – Europe is climbing reduce energy dependence on Russia and preparing for potential disruptions in critical natural gas supplies Russia’s war in Ukraine sends prices to new highs.

Natural gas prices hit a record high on Thursday for the second day in a row, as oil and gas restrictions were increasingly seen as an option on the eighth day of the war – either through Western sanctions or in response to Russia. It can mean even more pain people’s wallets: Energy prices have been high for several months due to low rising supplies the cost of everything from utility bills to groceries how businesses pass on their costs to customers.

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Traders have “taken into account the growing likelihood of gas sanctions for each day the offensive continues,” said Kaushal Ramesh, a senior analyst at Rystad Energy.

The price of gas is 10 times higher than it was in early 2021. But it continues to flow through major pipelines from Russia to Europe, including through Ukraine, the pipeline companies say.

To prepare for any outages as the war intensifies and reduce dependence on Russia, countries are gathering new supplies of liquefied natural gas – LNG – by ship. They are also speeding up plans for non-Russian gas import terminals and pipelines, and are talking about allowing coal-fired power plants to continue emitting climate-changing emissions when it means energy independence.

However, many of the measures will take months or, in the case of new pipelines and terminals, years. The long-term response is the rapid creation of renewable sources such as wind and sun. But for now, Europe depends on gas for heating homes, generating electricity and supplying industries such as fertilizer manufacturers.

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Europe, which almost 40% of gas comes from Russia, is in a different situation than the US, which produces its own natural gas. However, European Commissioner for Energy Kadri Simson says that Europe “has the tools” to deal with any Russian revenge this winter, and to recognize a complete shutdown “of course, will still be a problem.”

Germany will spend 1.5 billion euros ($ 1.66 billion) to buy more LNG. Chancellor Olaf Scholz on Sunday proposed to build two LNG import terminals a few days after the blockade of the already completed Nord Stream 2 gas pipeline from Russia to Europe.

European Union countries are working to create a strategic gas reserve and set storage requirements. Officials are urging countries to sign gas exchange agreements in emergencies.

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Next week, the EU executive committee is due to publish steps that governments can take. The International Energy Agency, based in Paris, said on Thursday that Russian gas imports could be cut by a third this year through steps including closing existing gas contracts with Russia and finding new supplies from partners such as Norway. and Azerbaijan, introducing minimum storage requirements, maximizing the use of remaining nuclear power plants and providing financial support to vulnerable electricity consumers.

Denmark has given permission to build a pipeline to supply Norwegian gas – another major source for Europe – to Poland after the permit was suspended last year.

“We are really busy catching up with the lost months,” said Saren Juul Larsen, chief project officer at Energinet. “We agreed with our contractors that they would run more machines and people to complete the task so we could set the pace and finish as soon as possible.”

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Energinet plans to partially launch the Baltic Pipe on October 1 and fully launch on January 1 with a capacity of up to 10 billion cubic meters of gas per year.

According to analysts at the Bruegel Research Institute in Brussels, completely disconnecting Europe from Russian gas until next winter’s heating season – if necessary – would be possible but painful, coupled with additional costs and possibly forced conservation. Given record LNG supplies from places like the US, the total loss of Russian gas will leave Europe 10-15% short and face potentially painful steps to reduce gas use, which will primarily hit businesses.

“If the EU is forced or willing to bear the costs, it will be possible to replace Russian gas next winter without devastating economic activity, freezing people and disrupting electricity supplies,” they said.

Until now, broad Western sanctions have spared gas and oil, even if they have been directed against Russian banks and their ability to interact with Western financial systems. Specific exceptions have been included for energy transactions. Officials say they are trying not to harm their own economy and consumers when they hurt Russia.

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But the sanctions indirectly affect oil from Russia, which ranks 3rd in the world for oil production, which sells 25% of supplies to Europe. Some oil buyers have shunned Russian oil in recent days, fearing that sanctions on Russian energy could make the oil they buy unusable.

“European refineries have already given up cargo on the market because people are afraid that sanctions may come, and so they don’t want to be caught with cargo they can’t resell,” said Amy Myers Jaffe, a research professor and head of the lab. Climate Policy at Tufts University.

The power outage imposed by Russia has long been considered unlikely – especially with gas – because it would cost Russia its largest customer in Europe and about $ 300 million in revenue a day.

Russian officials stressed that they do not intend to cut off oil and gas, and stressed their role as reliable suppliers. But the mystery remains: while Western countries are shutting down Russian banks, Europe continues to support the Russian government – and the military – through energy purchases.

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White House spokeswoman Jen Psaki said the United States was “very open” to sanctions against Russia’s energy and gas industries, but measured it at the potential cost to Americans.

“We are considering it. This is very important, but we need to consider what the consequences will be, “she told MSNBC on Wednesday.” We are not trying to harm ourselves. We are trying to harm President Putin and the Russian economy. “

While Europe is vulnerable in the short term before it can build renewable energy, it is Russia that is losing in the long run from the embargo or shutdown.

The gas embargo for several years will lead to a drop in Russian economic production by 2.9% and Germany’s growth by 0.1%, said trade expert Hendrik Malkov of the Kiel Institute of World Economy. Any Russian threat to stop supplies “will not be credible,” Malkov said.

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Associated Press reporters Jan M. Olsen in Copenhagen, Denmark; Katie Busewitz in New York; and Darlene Superville in Washington contributed.

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