The invasion of Ukraine will complicate the situation on the European gas market

Opublikowano: 07/03/2022

Despite the invasion, Gazprom has increased gas transit to the EU, which may indicate a desire to maintain existing business relations with member states. During the first five days following the invasion, the transit of Russian gas through Ukraine more than doubled (from around 55 million m3/d to 117 million m3/d). The use of the Yamal gas pipeline has increased, too. On average, it transported 4.2 million m3/d more of Russian gas to Poland than in February (an increase of 52%, to 13% of the pipeline's transmission capacity). Of this, approximately 2.4 million m3/d was sent to Germany (3% of the Mallnow interconnection point’s capacity). In total, the transit of Russian gas to the EU increased by more than 20% during this period (from 529 million m3/d to 640 million m3/d).

Key numbers:

20% increase in transit of Russian gas to the EU during the first five days following the invasion of Ukraine

127 bcm more of gas could be imported by the EU by making full use of the existing LNG terminals and interconnectors supplying Algerian gas

33 bcm – size of EU countries’ gas reserves at the end of February 2022 (29.5% of storage capacity)

If the Russian side decided to halt supplies to the EU immediately, most member states would be able to meet their energy needs in March through domestic extraction, imports of Norwegian, Algerian and Azerbaijani gas, and the use of LNG terminals and gas storage facilities. Spain, Belgium, Croatia and Lithuania would be in the most favourable situation: though would not be forced to make additional use of their gas reserves. Sweden (-3.1 million m3/d), Estonia (-3.7 million m3/d), Slovenia (-4.1 million m3/d), Bulgaria (-5.1 million m3/d) and Luxembourg (-4.8 million m3/d) would be forced to limit consumption or make use of import options and other EU countries’ reserves. This would only be possible with full solidarity between member states in the energy sector. Finland will be in the most difficult situation: it would be forced to reduce gas consumption by 60% in March (7.9 million m3/d) due to the limited capacity of interconnectors and LNG terminals, despite importing 4.9 million m3/d of gas from the Latvian Inčukalns warehouse via Estonian territory.

A radical reduction in the supply of Russian gas on the European market is now less of a threat to the European economy than a few months ago. According to meteorological forecasts, the rest of the winter will be mild. This will lower demand for gas, like in previous years. In 2011-2021, average gas consumption was highest in December and January, before decreasing gradually in the following months. Compared to average gas consumption in January, a gradual decrease could be observed (-15% in February, -24% in March, -45% in April and -52% in May).

The largest decrease in demand in the summer months compared to winter can be observed in countries in Central and Eastern Europe, such as Hungary (demand in June 25.5% of that in January), Estonia (also 25.5%) and Romania (27.5%). Above all, the seasonal effect was lowest in southern European countries such as Malta, Portugal, Greece and Spain, which rely on gas for heating during the winter months to a much lesser extent (Chart 4).

Current gas reserved stored on EU territory amount to around 33 bcm, which is around 29.5% of storage capacity and corresponds to the reserves during the same period in 2017 and 2018. However, it is 12.3% lower than the average EU reserves in 2011-2022. The Italians (7.8 bcm) and Germany (7.2 bcm) have the largest gas reserves. Poland’s gas reserves amount to 2.1 billion m3, which in simplified terms corresponds to the demand for Russian gas in March-April (120%) and 32.6% of the average consumption of Russian gas in March-November. A big challenge for many EU countries may be accumulating enough reserves to reach 70-80% of storage capacity before the start of the heating season in November.

Full use of the existing LNG infrastructure (an additional 91 bcm/year) and the interconnectors transmitting Algerian gas (an additional 36 bcm/year) would significantly reduce the challenges associated with the suspension of Russian gas supplies (150-170 bcm/year). A significant obstacle to these measures could be the limited capacity of the main European LNG importers’ transmission system (Spain, France, Italy) and their interconnections with other EU countries. According to analysis by Bruegel, the EU’s LNG import capabilities should further increase in the coming years, along with the development of the regasification infrastructure.

A complementary solution could be a temporary or long-term reduction in gas demand in EU countries. In industry, it would be difficult to rapidly change the structure of fuel consumption. According to International Energy Agency data, daily demand for gas in industry in the EU remained relatively unchanged in 2010-2020 (around 142 bcm per year). In the residential and commercial buildings sector, there has been a decrease in consumption (to around 176 bcm per year in 2020), mainly due to thermal modernisation and increasing energy efficiency. The greatest potential for reducing gas consumption is in the power generation sector, which consumes around 100 bcm of gas per year. Part of the gas generation capacity could be temporarily replaced by using existing coal capacity and energy imports. Additional opportunities to replace gas in the power sector also be created by the suspension of the ongoing decommissioning of nuclear power plants in Germany and other countries that have considered moving away from nuclear energy in the past.

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