Wednesday, 7 December, 2022

From Russia without Gas

Chinmay Prasun Biswas

From Russia without Gas
Chinmay Prasun Biswas

Popular News

Movie lovers may remember that Sean Connery starred James Bond film From Russia with Love released in 1963. There was a famous dialogue in the lip of the heroine Rosa Klebb (Lotte Lenya) – “I am Major Barbara of the Russian Army”. After around fifty years another drama, not reel but real, is being staged on European soil. It may be named as From Russia without Gas produced and directed by Vladimir Putin. That dialogue may be slightly changed and extended as – “I am Vladimir Putin, Russian President, I shall not give gas to Europe”.

Russia, the largest natural gas supplier to the European Union, has temporarily suspended gas supply to Europe through the Nord Stream pipeline. It is the main gas supply pipeline from Russia to Europe. Around 55 billion cubic metres of gas which is more than 40% of total gas demand of Europe, is supplied annually through it.

Through this pipeline, placed at the bottom of the Baltic Sea, Russia supplies gas to Germany from December, 2005. From Germany that gas is transmitted to other countries of the European Union. Gas supply was declared suspended for 10 days from 16th July, 2022. As reported, Russia’s largest energy company faced a challenge in June, 2022 because turbines repaired in Canada and Germany were not returned timely. So, they were forced to reduce the amount of gas supply to Germany through the pipeline. Afterwards, Russian gas supply to Europe has been completely stopped on mechanical reason. Earlier, Moscow had repeatedly warned that the gas supply to Europe through this pipeline could be completely stopped due to delays and non-cooperation of Western countries.

This decision of the Russian company Gazprom has left Europe, particularly Germany, under serious crisis. Germany is very worried about the economic impact of the coming cold days and gas crisis in Europe. Due to gas supply cut European countries are forced to stockpile gas for winter. Some European countries are even considering switching back to coal generation or using alternative sources.

For example, Germany has announced that it will connect its coal power plants to the grid to save gas cost. In war between Russia and Ukraine, European countries followed the US policy of supporting Ukraine and imposed tough sanctions on Russia. Among other things, these countries raised the issue of reducing oil and gas purchases from Russia to create pressure on Moscow. As a result, situation became dire for European countries that were heavily dependent on Russian energy. Gas price has increased dramatically. According to a German official, the country's gas reserve is currently at 61% which is lower than normal for this season. If Russian gas export stops Germany would have only two months’ gas reserve.

Indeed, the gas crisis could have far worse consequences for European countries. The cutoff of Russian gas supplies to Europe could lead to fuel price hike, production cost increase, economic growth decline and deterioration of Europe's economic position in global economy. If this process continues, the gas war may change the course of development in Europe or even the world. As reported by Reuters, Germany, the world's fourth largest economy, as well as other European countries are preparing for all possible situations.

According to statistics from the Bavarian state's VBW industry association, a loss of gas could cost the German economy as much as $195 billion (193 billion euros) in the second half of the year. Bertram Brossart, managing director of VBW, said that if gas imports from Russia stops, 5.6 million people in Germany could lose their jobs overnight. It will affect not only the chemical, steel, glass and paper industries of the country but also the food or porcelain manufacturing plants.

European countries apprehend that if Russia extends the maintenance period, their plans will be disrupted in the upcoming winter and the ongoing gas crisis will increase. As a result, governments of these countries will have to take other initiatives including increasing price which will have a negative impact on consumers. Coping with the winter in particular will be challenging. 

There are other large gas pipelines for supplying gas from Russia to other European countries but flow of gas in those pipelines is gradually decreasing.  Russia has completely cut off gas supply to a number of European countries for not complying with its demand to pay gas prices in rubles. As a result, gas price has increased. Europe's benchmark wholesale Dutch gas prices rose up to 400% compared to July last year.

Dutch Energy Minister Rob Yetten said that if Nord Stream's gas supply is cut off, it will affect the whole of northwest Europe. Henning Glostein, director of energy, climate and resources at the Eurasia Group, told CNBC that such a move would represent a peak economic war scenario,

“Germany has become a hotspot for the entire European Union,” says Glostein. Germany is Europe's largest population, economy and gas user. Besides, the country is one of the single importers of Russian gas and with 9 land borders. What happens in Germany will spread to the rest of Europe.'

During recent years there were energy crisis and deficit in supply of gas through Nord Stream pipeline. That deficit was being adjusted through Ukraine and Poland war has made it impossible. As a result |Europe is going to face a very tough winter.

Due to non-payment of price Russia cut off electricity supply to Finland in last May. Around 10% of Finland's total electricity demand is met with electricity imported from Russia. FinGrid's senior vice president Rima Paivinen said - “The shortfall in power import from Russia will be made up by more power import from Sweden and more power generation in Finland.” Earlier last April, Finland announced plans to reduce electricity import from Russia. According to analysts, reducing electricity import from Russia would increase Finland's electricity price up to 30%.

It was said in the press of Finland on Friday that Russia may announce a power cut as the country wants to join NATO. However, Moscow did not mention anything like this as the reason for the power cut.


The writer is a former Commissioner of Taxes