Pages

Friday, March 21, 2014

How Europe Slowly Made Itself Immune To Russia's Threats

The Oxford Institute for Energy Studies is out with a note on the Ukraine crisis' potential impact on Europe gas imports (spotted by Mike Levi).

The conclusion: most of the continent would not be affected should Russia step on the gas hose leading out of Ukraine.  

Europe is in a better position to handle a potential disruption than it was on previous occasions (2006 and 2009). Following the completion of the Nord Stream pipeline in 2012, only about 50% of the Russian gas to Europe transits via Ukraine, down from 80% previously. Russian gas to Northwest and Central Europe is largely supplied through the Nord Stream pipeline (from Russia to Germany via the Baltic Sea) and the Yamal-Europe pipeline (from Russia via Belarus and Poland to Germany).  

Oxford views the threat of a shutdown of the non-Ukraine infrastructure as remote. 

Here's the list of overall Russia import totals. The leader, Italy, has a number of different fallback options, including beefing up imports from Northwest Europe or North Africa. Turkey, No. 2, remains slightly more exposed, though it could simply increase its LNG imports, a not-inexpensive but perfectly viable option.

The list of countries that get the greatest chunk of their gas on a percentage basis from Russia also have some built-in cushions. Although Bulgaria and the Czech Republic get huge percentages of their gas from Russia, they both have more than a month's-worth of backup storage. Mosts at risk, then, is Greece and Romania, who get about 50% of their supplies from Russia with no apparent backup storage. Not listed are Serbia and Bosnia, which also get at least half their supplies from Russia — Oxford says those countries were most affected

The most enlightening nugget in the report is the scenario by which a gas cut-off is most likely to occur. It turns it would have less to do with geopolitics and more to do with finance: Naftogaz Ukrainy, the principal gas firm in Ukraine, is $2 billion in debt to Gazprom, the Russian state oil giant. In the past, Oxford says, this debt build-up has led to a gas cut-off. 

Such a dispute now seems possible, even likely, (i) because the political and strategic dispute between Russia and Ukraine is so serious, and political tensions so high, that the possibilities of reaching a negotiated settlement of the financial issues are limited, and (ii) because Naftogaz’s indebtedness is chronic, and is part of a larger problem – that of Ukrainian state indebtedness. 

But overall, the means at Russia's disposal for striking back at increased sanctions, at least as far as energy goes, seem more limited than ever.

SEE ALSO: New York's 6,300 Miles Of Gas Mains Are Half A Century Old

Join the conversation about this story »

    

READ THE ORIGINAL POST AT www.businessinsider.com