EXPLAINER: Europe struggles to cope with gas cuts in Russia | National policy


By DAVID McHUGH – AP Business Writer

FRANKFURT, Germany (AP) — Europe is facing an energy crisis that is squeezing the finances of ordinary people and which, in just a few weeks, could turn into blackouts and factory closures. Already, many economists say a recession is on the way.

The cause: Russia has choked off supplies of cheap natural gas that the continent has depended on for years to run factories, generate electricity and heat homes. It has sent European governments into a desperate race for new supplies and to find ways to mitigate the impact as economic growth slows and household bills rise.

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On the plate of leaders right now: How to cushion the blow to the poor, who are hit hardest by rising electricity, gas and food bills, and how to calm power markets and gas that went haywire, with fluctuating price increases of more than tenfold.

Here’s the latest on Europe’s efforts to avert a total energy disaster:

HAS RUSSIA CUT OFF THE GAS TO EUROPE?

Just about. The crisis escalated when state-owned Russian exporter Gazprom said the main oil pipeline to Germany would remain closed, blaming an oil leak and saying the issues could not be resolved due to sanctions banning many deals with Russia.

European officials say it is high energy blackmail, aimed at pressuring and dividing the European Union in retaliation for backing Ukraine against the Russian invasion. The shutdown of the Nord Stream 1 pipeline means Russian gas shipments are down 89% from a year ago.

There is still Russian gas flowing to Europe via a pipeline through Ukraine to Slovakia, and another across the Black Sea to Turkey and then to EU member Bulgaria. Russia began to cut gas as early as last summer, before the war started in Ukraine. This sent gas prices sharply higher. Then Gazprom cut off a number of European countries, further increasing costs.

Given the slow contraction of supplies from Russia since last summer, officials say Europe must be ready for zero Russian gas this winter.

WHY IS RUSSIAN GAS SO IMPORTANT?

For decades, Europe has depended on Russia for cheap gas. Without it, high energy prices threaten to trigger a recession this winter as record inflation leaves consumers with less to spend as costs rise for food, fuel and utilities.

A full shutdown could deal an even bigger blow to an already struggling economy.

As well as heating homes and generating electricity, gas is used to power a range of industrial processes that most people never give much thought to – forging steel for cars, making glass bottles and pasteurising milk and cheese.

Companies warn that they often cannot switch overnight to other energy sources such as fuel oil or electricity to generate heat. And as everyone looks for alternative supplies, the price of fuel oil and coal has also increased.

In some cases, equipment that contains molten metal or glass is destroyed if the heating is turned off, and in the longer term, energy-intensive companies may simply abandon Europe.

IS THE PROBLEM ONLY ABOUT HIGH PRICES OF NATURAL GAS?

No. Electricity prices have also skyrocketed because gas is an essential fuel for generating electricity. To make matters worse, other sources of power have lagged behind for reasons unrelated to Russia.

The drought undermined hydroelectric power from rivers and reservoirs. France’s fleet of 56 nuclear power plants is operating at half power due to shutdowns for corrosion issues in key pipes and repairs, upgrades and safety checks. A heatwave limited the use of river water for cooling power plants, and falling water levels on the German Rhine reduced the supply of coal to generators.

In a reversal of roles, France talks about sending natural gas to Germany, while Germany exports electricity to France. Usually it’s the other way around.

Rystad Energy analysts say Europe could face a severe power shortage as early as this month. This winter, the worst case of cold weather, low wind power generation and a 15% reduction in gas consumption “would prove very difficult for the European electricity system and could lead to rationing and blackouts. electricity “.

WHAT IS EUROPE DOING TO EASE THE CRISIS?

Europe has lined up all the alternative gas supplies it could: more liquefied natural gas, or LNG, which comes by ship from the United States and more pipeline from Norway and Azerbaijan. Germany keeps in operation coal-fired power stations that it was going to close to reduce greenhouse gas emissions.

The 27 EU countries have approved a plan to cut gas consumption by 15% by next March, roughly the amount needed, experts say, to offset the loss of Russian gas.

National governments have bailed out utilities forced to pay exorbitant prices for Russian gas and handed out cash to hard-hit households. Public buildings adjust thermostats and turn off lights to save energy.

Now EU officials say it’s time to intervene in the energy markets that Russian President Vladimir Putin has shattered. The EU has proposed capping Russian gas import prices to limit painful energy inflation and reduce the amount of money flowing from Europe to Russia’s war chest. Another measure would cap the windfall profits of energy companies and use that money to support households and businesses.

Perhaps most important in the short term, Europe managed to fill 83% of its storage for the winter thanks to LNG and reduced consumption due to high prices.

Storage levels continued to rise even after Nord Stream 1 shut down, raising hopes that Europe can weather the storm. Gas prices have fallen to pre-cutoff levels, though they are still painfully high.

WHAT IS RUSSIA’S GAME?

Even as gas sales declined, soaring prices helped sustain revenue from those sales for Russia. Oil and gas imports were initially exempt from sanctions because Europe was dependent on Russian energy. Europe has banned Russian coal and will ban most Russian oil at the end of the year.

Russia’s revenue from fossil fuel exports reached 158 billion euros from February to August, according to the Helsinki-based Center for Energy and Clean Air Research.

But oil has tended to be the Kremlin’s main source of revenue, and unlike gas in fixed pipelines to Europe, it can be sold around the world by tanker. And the gas relationship with Europe could be gone for good – and with it, any influence it might have brought.

“Gas flows from Europe no longer play a role in my calculations,” said German Vice-Chancellor Robert Habeck. “The only reliable thing from Russia is lies.”

So if Putin thinks he has leverage on the gas, he’s running out of time to use it. This week he threatened to completely cut off energy supplies to the West in response to the price cap.

“Russia hasn’t lost anything now that it hasn’t already lost (…) this winter is the last chance to use the gas weapon, successfully or not,” tweeted expert Janis Kluge. of Russian Economy at the German Institute for Foreign and International Relations. Security matters.

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