Europe plots to escape high-priced Russian gas.

FT: “….Scars from Russia’s gas cuts in 2006 and 2009 run deep across eastern Europe and, at first glance, the continent appears to be in danger again this year thanks to a seemingly unshakeable dependence on Gazprom, Moscow’s gas export monopoly.”
Europe’s imports from Russia rose 16 per cent last year to hit a record high. Overall, Gazprom supplies 30 per cent of Europe’s gas but, in many eastern states, the reliance is closer to 100 per cent.
Half of Europe’s imports from Russia flow through Ukraine and that supply is always a potential hostage to politics. In June, Gazprom stopped gas sales to Kiev in a pricing dispute, raising fears that Ukraine will be forced to siphon off the EU’s transit gas if supplies are not resumed by winter. Moscow is also tightening the noose around Kiev by preventing EU countries from re-exporting Russian gas as a lifeline to Ukraine in so-called “reverse flows”.
Hopes are rising among diplomats that the EU, Russia and Ukraine will strike an agreement on resuming gas supplies to Kiev in negotiations in Berlin next week. But even if there is a deal, most eastern European governments can hardly relax.
….The EU’s first line of defence lies in far higher gas reserves than those in 2009 and countries have been stockpiling heavily since spring.
….With oil prices sinking beneath $90 a barrel, the EU is increasingly confident that Moscow’s treasury does not want any cut in gas sales nor risk more European customers making a generational shift away from gas to other fuels. “They realise that they would also get into trouble,” says Karel De Gucht, the outgoing EU trade commissioner. “Russia also has an interest that they are seen as a reliable supplier”.
But it may be too late for the Russians to stop the gradual but profound shift away from Gazprom that is under way.
….EU countries are building core infrastructure – such as import terminals for liquefied natural gas and cross-border pipelines – to break the stranglehold of Russian supply routes. However, progress has been agonisingly slow. Fitch, a rating agency, does not expect Europe to lessen its reliance on Russia “for at least the next decade and potentially much longer”.
Major western EU nations are at less risk because they already have greater diversity of supply and big LNG ports, procuring gas from Norway, Algeria and further afield. Germany has the direct Nord Stream pipeline from Russia that is considered unlikely to be caught up in a spat because it does not pass through Ukraine. The western nation viewed as most vulnerable is Italy, which would be in trouble if it suffered simultaneous disruptions from Russia and Libya.
“A pipeline connecting the terminal and [Azoty subsidiary] Zaklady Chemiczne Police will allow us to benefit from additional flows of non-Russian gas from the Gulf or US shale gas,” says Mr Jarczewski. The US is debating whether it will send supplies to Poland, which will not happen unless Washington lifts restrictions on gas exports.
….Ilian Vassilev, an energy analyst and Bulgaria’s former ambassador to Moscow, says Russia’s high prices are crippling the competitiveness of central European industries such as chemicals, metallurgy and central heating. “Few if any remain afloat,” he says.
In effect, says Mr Vassilev, Gazprom is helping to kill off its own customers, with high prices accelerating deindustrialisation. Bulgaria’s gas imports fell to 2.7 bcm last year from 6.7 bcm in 1989, the last year of communist rule.
He argues that any decision by Russia to cut gas this winter would depend on political factors in Moscow. “President Vladimir Putin’s irrationality has limits and these limits are set by his sense of what is needed to survive and his grip on the oligarchs,” he says.
Russia would be eager to avoid any shock that would push the EU to adopt other fuels, he adds.
“I do not expect that even if gas supplies are interrupted that this will last long – as Moscow is aware that such a move will trigger radical diversification trends in the EU that it will not be able to control,” says Mr Vassilev.
In Prague, Mr Bartuska also warns that Mr Putin could find that there would be no way back: “Fuel switching is not easy, would be costly and would take some time – but once done, many customers would not come back to gas, even if the whole industry begged them on their knees.”