Ahead of the 23-24 October EU summit, on Thursday (16 October), the Commission presented a first-ever analysis of the consequences of a disruption of Russian gas supplies, or even a complete halt of such imports to the Union, and neighbouring states. The result, which was not difficult to predict, is that some countries would be much more affected than others.
With the winter approaching and the Ukraine crisis still smouldering, the Commission said it wanted to have a clear picture of where the biggest shortfalls would arise and how they could be mitigated.
The “stress test” exercise consisted in a simulation of two main hypothetical disruption scenarios during autumn/winter (for periods of one month and six months in each case):
- a complete halt of Russian gas imports into the EU and the members of the Energy Community (Ukraine, Moldova and the Western Balkans countries). This would also include a complete halt of supplies through the Nord Stream pipeline which brings Russian gas to Germany under the Baltic Sea;
- a disruption of the Ukraine transit route.
A disruption of gas supplies through Ukraine remains a realistic possibility, as long as Moscow and Kyiv remain unable to reach an agreement on the price of gas Gazprom sells to Ukraine. But a complete halt of Russian supplies to the Union looks like a nightmare scenario, which would likely last six months.
Asked why the scenario of a complete halt was considered, and why its duration has been set at six months, a Commission official insisted that the report was not a prognosis, but a hypothetical analysis.
“If you want to stress-test your system, it’s only logical and prudent that you take extreme scenarios into account, knowing that risk can occur on the base of multiple factors which are not all under the control of the EU,” the official said. Regarding the six-month period, it was explained that it covered September to February, the winter being the period with the highest gas consumption.
LNG ‘key alternative’
Liquefied natural gas (LNG) is the key alternative to increase supplies in case of serious shortfalls, the Commission says. However it also became clear that the Commission had put an emphasis on the feasibility of alternative supplies in a crisis period, not on the price of gas that could be brought from elsewhere, which is expected to be higher.
As an example, in the case of six month-long Russian supply disruption, the share of Russian gas which normally represents 22% of the Union’s total consumption is replaced mostly by increased import of LNG, the price of which is normally higher. The normal share of LNG in the Union’s total gas consumption is 7% and would grow to 33% in the Russian disruption scenario.
“In view of commercial and operational considerations, procuring LNG spot cargoes expediently during a crisis can be both expensive and require some time. Therefore additional volumes of gas in storage or contracting some form of “LNG insurance”, e.g. in the form of LNG purchase options, can greatly reduce corporate exposure by hedging both price and operational risk,” the report says.
According to the report, in all scenarios the Eastern member states and the Energy Community countries (Ukraine, Moldova and the Western Balkan countries) would be affected most. However, if countries cooperate and supply each other with gas they have available, the effects of the disruption could be largely mitigated.
In the absence of cooperation between members, serious supply shortfalls of 40% or significantly more could materialise, at least towards the end of the 6-month disruption period, for Bulgaria, Romania, Serbia, the former Yugoslav Republic of Macedonia and Bosnia and Herzegovina, the report finds. This concerns both Ukraine transit and full Russian supply disruption scenarios. Shortfalls of similar magnitude would apply for Lithuania, Estonia and Finland in the scenario of a total halt of Russian supplies to the EU. Hungary and Poland would also be substantially affected, albeit to a lesser degree, by shortfalls of 30% and 20% respectively.
In the “cooperative scenario”, the effects of disruption are significantly dampened, and the only countries that remain significantly affected would be Estonia and Finland.
In the case of Ukraine, a country that normally consumes about 50 bcm/year of which 20 bcm are domestically produced, the stress tests indicate that domestic production and storage can cover 50 to 70% of the demand. Imports from the EU could partially cover the shortage of gas to Ukraine, the report says. However, it remains unclear how Ukraine’s EU neighbours Poland, Slovakia and Hungary could send gas to Kyiv if they experience shortages themselves.
Storage levels ‘very high’
The report makes it clear that the storage capacities in the EU are at present at a very high level of around 90%. Nevertheless, it is said that a long-lasting crisis or a very cold winter would deplete reserves quickly, and that buying gas from alternative sources will be needed to ensure supply to consumers.
Reducing the demand
In the case of crisis, member states are urged to reduce the use of gas for industrial customers or gas-fired power generation. Whenever possible, they are urged to resort to switching to alternative fuels, such as biomass or oil. District heating systems in many affected countries run predominantly on gas, but should be able to switch to fuel oil. It is noted however that in Serbia or Bosnia and Herzegovina, although a third of district heating plants are capable of switching from gas to oil, there is a lack of oil stocks.
Several national reports mention the possibility of a switch from gas consumption to electricity consumption, or to exchange of gas and electricity between neighbouring countries. Greece as an example can import electricity from Bulgaria where it is relatively abundant, and pump imported LNG to Bulgaria, which lacks such a terminal.
Speeding up new infrastructure
The Commission urges member countries to speed up key infrastructure construction, such as the Slovak-Hungarian gas interconnector, the ?winouj?cie LNG terminal in Poland and others.