Spain has begun to supply gas to central Europe due to the risk of a possible cut in Russian supply. Countries such as Austria, Germany and the UK are among the most vulnerable and could see their reserves fully depleted before the end of winter. An interruption of gas supply from Russia could trigger the need to activate European solidarity mechanisms.
The so-called Penta Energy Forum – made up of Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Switzerland – decided in early February to promote a working group to coordinate the management of their gas supply levels jointly at the regional level.
At that time, the existing reserves in Europe were limited to just 9 weeks and today, they are practically half, despite the supply effort that has been carried out by the United States with the shipment of methane tankers and from China and Japan that have diverted ships to increase supply from the heart of Europe.
According to S&P forecasts, Europe would have 13.45 Bcm stored on March 31 if last winter’s consumption data were repeated but, as the current rate of consumption progresses, that figure would drop to 4.43 Bcm due to the decline in Russian exports.
From January until now, the Yamal gas pipeline – which ends in Germany – has experienced an average fluctuation of 95.94 million cubic meters per day. Likewise, exports through the Ukraine to Slovakia in Velke Kapusany have been 38.65 million cu m/d less than average in the year and the forecasts made for the entry into operation of the Nord Stream 2 gas pipeline have remained in disbelief for the crisis with Ukraine.
Risk analysis
Last January, the European Commission and the member states carried out an analysis on the capacity to resist a possible supply problem and determined that stock levels were sufficient. However, the current situation has caused tensions between supervisory bodies and technical managers that will lead to increased control of forecasts by the latter.
Russia has not increased its gas supply this winter to meet the demand pull from Europe due to the economic recovery, which has contributed to tightening prices and leaving reserves at ten-year lows.
This behavior generated deep discomfort in the European Commission, which carried out intense diplomatic work in the first weeks of February to increase supply sources in order to meet gas demand.
The president of the European Commission, Úrsula von der Leyen, and the president of the United States, Joe Biden, have carried out intense diplomatic work to request an increase in supplies from Qatar, Azerbaijan, Norway. Likewise, Washington has increased export volumes to Europe and has accelerated the start-up of some of its liquefaction trains with the aim of increasing its supply capacities.
The European Commission plans to present an emergency plan for gas supply for next winter at the next European Council in March. The intention of the Community Executive is to increase the arrival of gas through LNG, which places Enagas in a key position for the supply of gas to Europe this coming summer.
On the other hand, Beijing and Moscow also advanced on possible measures to circumvent future sanctions. Both countries reached an agreement to reinforce their financial communications systems due to the risk that Russia could be excluded from the Swift system and reached an agreement for the start-up of the Power of Siberia 2 gas pipeline.
Gazprom will build a new gas pipeline through Moldova that will allow an additional 10 bcm to be exported to China over the next 30 years. This great agreement supposes to further tighten the rope with the supply of gas to Europe, since China is on the way to increase its consumption to reduce its current levels of contamination.
With this agreement, Russia reduces the pressure that it could suffer in the face of a reduction in the volumes of Russian gas purchases from Europe that
oil concern
The war between Russia and Ukraine will cause a strong impact on fuel prices. European refiners are the most exposed to a possible tightening of sanctions on Russia, according to data analyzed by S&P Global Platts.
About half of Russia’s crude oil and oil product exports – currently around 6.5 million b/d – go to European countries and account for a quarter of oil imports.
In the Spanish case, according to data from the Strategic Reserves Corporation, Russia exports 4.3% of the oil used in our country, which makes it the eighth supplier behind countries such as Mexico, Libya, Equatorial Guinea or the United States.
According to S&P data, the Druzhba pipeline system transports around 1 million b/d of crude from Russian fields to Europe, mainly to refineries in Germany, the Netherlands and Poland.
Ukraine, for its part, sends Russian oil to Slovakia, Hungary and the Czech Republic through the southern section of the same pipeline. The transit of Russian crude from the country for export to the EU was 11.9 million tons in 2021, down from 12.3 million tons in 2020, while the transport of oil to Belarus remained unchanged in about 800,000 tons, according to S&P.
The northern branch of the Druzhba route, through Belarus, supplies crude oil from the Urals to refineries in Poland and Germany.
Schwedt’s 230,000 b/d PCK refinery and Total’s 230,000 b/d Leuna refinery are supplied via Druzhba, but may be alternatively supplied from the Baltic Sea. Plock’s 326,000 b/d also processes Druzhba crude, but has been diversifying its supply sources from Norway, Angola, Nigeria, Saudi Arabia and the United States.
In Germany, the Russian Rosneft is already the second largest refinery group in terms of capacity, behind Shell, and aspires to become the first in 2025, when it completes the expansion of one of its facilities.
When Russia seized Crimea in 2014, crude oil flows to Europe were not affected by the US sanctions imposed on Moscow, but this time the pressure could increase and strongly affect fuel prices.
Ribera warns: there will be supply, but more expensive
The Third Vice President and Minister of Ecological Transition, Teresa Ribera, remarked this Thursday that “in Spain the guarantee of security of supply is guaranteed” although “it may be affected by energy prices, on all fronts” due to the war .
In statements to the media in Lugo, he insisted that despite the fact that the supply is guaranteed, “we we are no strangers to price setting mechanisms in international markets of energy raw materials and this affects our energy prices and, as a consequence, the economy as a whole”.
In fact, Ribera has considered that this issue will be addressed at a European level and it is not ruled out that “additional measures for the protection of energy consumers” can be adopted. In any case, Ribera has remarked that Russia is not one of the “main suppliers, either by tube or by ship” to Spain, although the situation makes it necessary to reinforce “coordination at the European level”.
For its part, Enagás has also stressed that Spain’s natural gas supply is guaranteed for the coming months and the unloading of 29 liquefied natural gas (LNG) ships at its regasification plants is scheduled for March, to which will be added the auction next Monday of four extraordinary ‘slots’ (downloads), as a preventive measure.
As reported by the manager and carrier of the Spanish gas system, the anticipatory measures adopted by Enagás, in coordination with the Ministry for the Ecological Transition, guarantee the supply of natural gas to Spain in the coming months.
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