HomeEuropeRussia’s energy influence over Europe ‘is nearly over’

Russia’s energy influence over Europe ‘is nearly over’

Germany is currently ahead of schedule in its race to fill underground gas storage facilities ahead of winter.

Bloomberg | Bloomberg | Getty Images

Europe’s dependence on Russian gas appears to be coming to an end, energy and political analysts say, potentially alleviating the risk of further supply disruptions at a time when many fear Russia could completely cut off deliveries during the winter.

Europe in recent months has endured a sharp drop in gas exports from Russia, traditionally its largest energy supplier.

It has deepened a bitter dispute between Brussels and Moscow and exacerbated the risk of recession and a winter gas shortage.

Russia has cited faulty or delayed equipment as the reason for a reduction in deliveries. European policymakers, however, consider the supply cut to be a political maneuver designed to sow uncertainty across the 27-nation bloc and boost energy prices amid the Kremlin’s onslaught against Ukraine.

Russia’s energy weapon is going to become moot.

Agathe Demarais

Global forecasting director at The Economist Intelligence Unit

Agathe Demarais, global forecasting director at The Economist Intelligence Unit, a research and advisory firm, told CNBC that the Kremlin appeared to be weaponizing energy supplies and “burning bridges” with Europe while it still could.

Asked whether Russia’s energy influence over Europe may be coming to an end, Demarais replied, “Yes. Actually, very much so.”

“Europe is heading towards a very difficult winter, probably two years of a very difficult adjustment with a lot of economic pain. But then Europe is essentially going to become more independent with a more diversified mix,” Demarais said.

“And what that means is that Russia’s energy weapon is going to become moot,” she added. “Our view is that Russia knows that and that’s why it is already killing off gas supplies or inflicting uncertainty because it knows that if it wants to do damage to Europe it has to do it now. It is a now or never question.”

Race to fill gas storage

Germany, until recently, bought more than half of its gas from Russia. Yet, Europe’s largest economy is currently ahead of schedule in its race to fill underground gas storage facilities in order to have enough fuel to keep homes warm during the colder months.

Analysts told CNBC that Germany has been able to rapidly fill its gas stocks in recent weeks because of several factors. These include strong supply from Norway, the Netherlands and other countries, falling demand amid soaring energy prices, businesses switching from gas to other types of fuel, and the government providing more than 15 billion euros ($15.06 billion) in credit lines to replenish storage facilities.

The latest estimates from the power industry association BDEW show that German gas consumption from Russia fell to 9.5% in August. That’s down from a whopping 60% during the same period last year.

Norway has stepped in to become Germany’s biggest supplier of gas, BDEW data shows, providing almost 38% of German consumption last month. The Netherlands, the second-biggest supplier of Germany, was estimated to have delivered roughly 24% of German gas in August.

Ian Bremmer, president of the political risk consultancy Eurasia Group, said via Twitter last week that it “increasingly looks like Germany can get through the winter without severe rationing” even in the worst-case scenario that Russia turns off the taps completely.

That’s “very good news,” Bremmer said. “Russia’s energy influence over Europe is nearly over.”

‘Winter has yet to come’

While the EU is on track to beat targets for filling gas storage facilities, analysts warn that this alone will not be enough.

Demand reductions are expected to be necessary to ensure that the stored fuel lasts long enough to adequately support households and businesses through the winter.

Jacob Mandel, senior associate for commodities at U.K.-based consultancy Aurora Energy Research, said that should the EU fill its gas storage facilities completely ahead of winter, the best-case scenario would see these reserves last approximately three months.

“The threat of shortages remains,” Mandel said. “An unexpected cold snap could quickly drain inventories if imports do not keep pace.”

While the EU is on track to beat targets for filling gas storage facilities, analysts warn that this alone will not be enough.

Picture Alliance | Picture Alliance | Getty Images

The latest data compiled by industry group Gas Infrastructure Europe shows that the EU’s overall storage levels are at an average of over 80% full, while Germany’s underground storage is 84% full ahead of winter.

Andreas Schroeder, head of energy analytics at ICIS, a commodity intelligence service, told CNBC via telephone that Russia’s leverage over Europe’s energy “is not yet ending, but it is fading — slowly but surely.”

However, “we are still in a record high price environment, so clearly, the reduced flows do influence European markets to the extent that we have super high prices,” Schroeder said.

“This is still not over even with Germany being slightly ahead of its storage target and the whole European Union also filling its storage [levels]. And having reduced the reliance on Russian flows, it has brought very high prices.”

“Winter has yet to come,” Schroeder said. “If the winter is mild, we need less consumption cuts but if the winter is severe, we need more. It all hinges on [the] weather now.”



Please enter your comment!
Please enter your name here

New Updates