In light of Russia's reduced gas supply to Europe, what's next?

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Russia reduced gas supplies to five European Union countries, including Germany, the 27-country bloc's biggest economy that heavily depends on Moscow's gas to generate electricity and power industry.

FREMONT, CA: Russia curtailed its gas shipments to five EU member states, including Germany, the largest economy in the 27-nation union and a major consumer of Russian gas for the production of electricity and industrial power. The biggest natural gas pipeline in Europe, Nord Stream 1, which runs beneath the Baltic Sea from Russia to Germany, has seen a 60 per cent reduction in supply from Russian state-owned energy company Gazprom. Italy's supply has been slashed in half. Reductions have also been observed in Slovakia, Austria, and the Czech Republic. In recent weeks, gas has also been blocked off to Poland, Bulgaria, Denmark, Finland, France, and the Netherlands. Because Poland, for example, was already transitioning away from Russian gas by year's end and other countries had alternate supplies, those shutoffs were first viewed as less of an issue. However, large economies that consume a lot of Russian natural gas are hurt by the most recent cuts. Germany imports 40 per cent of its gas from Italy and 35 per cent of it from Russia. Gas supplies are sufficient at this time to meet needs.

Before the winter, Europe is rushing to replenish its subterranean gas storage. Gas utilities follow a predictable routine, building up reserves in the summer when, ideally, gas can be purchased at a lower price, and then depleting them in the winter when heating demand increases. The decreases will increase the cost and complexity of refilling storage. The decision has also made the possibility of a complete Russian gas cutoff, which would prevent Europe from obtaining all the fuel it needs for the winter, more likely. Several energy-intensive businesses, such as the production of glass and steel, use natural gas but are reducing their use due to rising costs, which is slowing the European economy. The gas serves as the swing energy source for electricity generation, stepping in when renewable energy sources like wind and solar are less productive due to unpredictably weathered conditions and when electricity demand increases during periods of extreme cold or heat, like the heatwave that occurred last weekend and led to record highs in Europe. Europe's subterranean storage chambers are currently 57 per cent full. The most recent proposal from the European Commission calls for each nation to reach 80 per cent by November 1.

The EU, which sourced about 40 per cent of its gas from Russia before the war, has laid out plans to reduce imports by two-thirds by year's end and completely phase out Russian gas by 2027. The alliance has already declared that it will obstruct Russian oil and coal beginning in August. The intention is to prevent Russia from using the USD 850 million per day it has been receiving from gas and oil shipments to Europe to finance its conflict in Ukraine. In contrast to Russian pipeline gas, which is often inexpensive, European governments and utilities have purchased expensive liquefied natural gas, or LNG, from the United States that is transported by ship. However, the war has caused an increase in energy prices, which is driving record inflation in Europe and keeping Russian revenue high.

In contrast to the increased deployment of renewable energy and conservation, there are initiatives to obtain more pipeline gas from Norway and Azerbaijan. Germany is bringing in four floating terminals, two of which should start functioning this year, replacing its lack of LNG import terminals.