The shock and awe of energy war

Ukraine’s decision to stop Russia’s gas flow to Europe on May 11 shook the market.

This happened at the entrance to the eastern border of Ukraine called Sokranovka. Sokranovka typically handles about 8% of Russia’s gas supply to Europe.

Gazprom said it continued to supply gas through Ukraine, but it fell from about 96 million cubic meters (mcm) to 72mcm, about a quarter less than the day before Wednesday.

The price of the Dutch gas hub TTF, which will be delivered in June next year, quickly jumped from just over 90 euros / MWh to 97 euros / MWh.

Russia imposes sanctions on Europe and many more former subsidiaries of Gazprom Gas supply Expected decline, at some stage, TTF prices rose 25% from Tuesday to over 113 euros / MWh.

These price spikes show the extreme sensitivity and instability that is prevalent in the market.

These prices will rise further as President Putin demands that the dilemma of paying gas in rubles in Europe worsen, the EU imposes new sanctions, and Russia and Ukraine cut off gas supplies. To do.

The Ukrainian Gas Transport System Operator (GTSOU) said it took this step because Russians are hampering and endangering the safety of the Ukrainian gas transport system.

Russia denied that and said Gazprom had promised to continue to supply Europe with gas.

Whatever is behind this, it’s important to note that this is the first time this has happened since the beginning of the war.

The concern is that as the war prolongs, this can be the beginning of further unforeseen turmoil.

Ultimately, the concern is the blockage of Russian gas flow to Europe.

In 2021, approximately 41.6 billion cubic meters (bcm) of Gazprom’s gas supply to Europe passed Ukraine from 155bcm.

Therefore, unless Russia takes drastic action to cut gas supplies in unison, about 25% of Gazprom’s gas supply to Europe is at risk.

However, this and the early outage of gas supply from Russia to Poland and Bulgaria increase the risk of further turmoil and strengthen Europe’s plans to implement emergency measures.

The European Commission will announce a proposal next week to stop the EU’s dependence on Russia’s oil and gas and accelerate its transition to green energy.

The plan is to reduce Russia’s gas imports by two-thirds this year and stop them altogether by 2027.

Carbon reduction

According to the FT, the cost of these proposals will be close to € 200 billion, in addition to plans to increase spending on carbon reductions.

EC reduces total energy consumption by 13% compared to previous 9% reduction and achieves 45% renewable energy share of all energy demand by 2030, compared to target 40% I suggest you do.

This requires increasing the capacity of renewable energy by nearly 2.5 times. Current level..

Once approved, these new goals will have a significant impact on Cyprus’ national climate and energy program for 2030. This is an effect we haven’t prepared for.

To facilitate this, the EU is considering relaxing green standards by allowing companies to build wind and solar projects without the need for environmental impact assessments.

The EU plans to announce some energy-related proposals on May 18.

Considering the cost implications of these proposals, EC Vice-Chairman Frans Timmermans said:

“We need a new energy source for sectors that are difficult to decline, and hydrogen is that energy source.

“It is clear that we need to make sure that hydrogen is as competitive as possible.”

But despite that word, the affordability of energy remains a challenge.

The measures taken by the EU so far have had little impact on price restraints.

The priority seems to be energy security – prices seem to come second.

The Mediterranean region can benefit from these proposals.

Egypt has already put together a hydrogen strategy with the help of the EBRD.

We have also signed several contracts to build hydrogen and ammonia plants for export to Europe.

However, the new EC proposal is European in many ways, including price impacts, public acceptance, communities opposed to placing wind turbines and solar farms near homes, and environmentalists against relaxation of standards. You may face resistance in each country.

The EU is also considering emergency measures that may be announced by May 18 in case Russia’s gas supply is completely cut off.

They reduce gas consumption, prioritize home and public services, reduce thermostat levels, telecommuting, and share gas resources between states.

Nevertheless, a complete cutoff of the gas supply can run the risk of a power outage, Factory closure And industry, rising unemployment, runaway prices, uncontrollable inflation, and recession-what Europe is trying to avoid.

But as the events in Ukraine worsen, this is becoming a real risk.

Dr. Charles Elinas teeth Senior Researcher so Global Energy Center, Atlantic Council

Tw: @CharlesEllinas

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