The prospect of Europe getting cut off from Russian gas supplies is starting to get real.

The clock is ticking in a standoff over the Kremlin’s demand that its customers in Europe pay in rubles for the fuel, which the region depends on for a fifth of its power generation.

The European Union has said the decree violates sanctions and hands more power to Russia. It suggested an alternative that avoids rubles on Friday, but it’s up to Moscow to decide if that’s acceptable. Payments come due in May, and that’s when the moment of truth arrives.

By refusing President Vladimir Putin’s payment terms and testing his threat to turn off the taps, European buyers “would be running a very real risk of their supplies being cut,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies.

The game of geopolitical chicken could lead to Europe rationing energy for the first time since the oil crisis in the 1970s. As the biggest consumer of Russian gas in Europe, Germany is most exposed, but the fallout would ripple across the continent and beyond. Here’s what could happen:

Market meltdown
Europe’s natural gas market would show the impact immediately. Trading is already on edge, with prices five times higher than the same time last year. That could get worse.

In the event of a supply disruption, forward contracts could more than triple, especially if Europe enters next winter with depleted storage, according to Kaushal Ramesh, senior analyst, gas and LNG at Rystad Energy.

Such a surge would put governments and central banks under pressure as they seek to control soaring inflation. The risk is that the mounting cost-of-living crisis intensifies and spills over into wider unrest and a deeper crisis.

Power shift
With less fuel for gas-fired generators, the risks of rolling blackouts would increase. While countries would try to shift to other sources, the options are limited.

France would halt large gas-fired power plants to conserve the fuel for other needs, Italy would maximize production from coal or fuel oil, and Germany has discussed burning more local lignite — the dirtiest form of coal. The workarounds are likely to make the region even more polluting.

On the upside, warmer weather would reduce gas consumption for heating, delaying the worst impacts at least until the fall.

By ramping up other energy sources, including an accelerated expansion of renewable power, the EU aims to cut its gas dependency on Russia by two thirds this year.

German rationing
Germany has triggered an emergency plan, with a task force meeting daily to monitor consumption and inventories. Its energy regulator is surveying companies about their usage to help determine how to distribute supplies.

Consumers would be protected as long as possible, and that means industry would bear the brunt of a rationing plan. That’s a big risk for Europe’s largest economy. The country depends on Russia for 40% of its gas supplies, and the fuel is critical for processes in the chemicals and metals industries.

At Europe’s biggest chemical factory, BASF SE churns out compounds used in manufacturing autos, medicines and fertilizers and all fueled by pipelines filled with Russian gas. The company warns that a sudden halt would send shock waves through many industries and cause irreversible damage to German competitiveness.

The concerns are echoed by the likes of steelmaker Thyssenkrupp AG, automaker Volkswagen AG and utility RWE AG.

“Stopping the pipeline-bound gas supply at this time would have dramatic consequences,” RWE Chief Executive Officer Markus Krebber said in an advanced copy of a speech for the company’s shareholder meeting next week. Many manufacturers “would no longer be able to operate their plants.”

Chancellor Olaf Scholz has said a halt to gas flows from Russia would trigger a serious economic crisis in Europe, leading to the loss of millions of jobs.

The sudden halt in Russian gas deliveries could cost Germany’s economy 220 billion euros, or about 6.5% of annual gross domestic product, according to a joint forecast of the country’s leading economic institutes. The Bundesbank estimates that output could shrink nearly 2% this year in the event of an embargo on Russian coal, oil and gas.

Read more: Germany to Borrow Extra 40 Billion Euros to Cushion War Blow

But the Berlin-based DIW think tank says a combination of energy savings and optimizing alternative supplies could put Germany in position to offset Russian gas as soon as this winter.

The government has expanded its authority over the energy sector with new rules on gas storage. It’s also planning to grant itself powers to put critical energy infrastructure under temporary state control.

Global squeeze
Emerging nations would get squeezed by Europe’s thirst for energy, especially liquefied natural gas, as they would struggle to compete on price. The region is already pulling most of the spare LNG supply from the U.S. and other nearby exporters, keeping spot rates for the super-chilled fuel well above normal for this time of year.

Pakistan is suffering from blackouts, due in part to European nations outbidding the cash-strapped country for LNG cargoes. Argentina is also dependent on LNG from the spot market and has been forced to fork over hundreds of millions of dollars to secure deliveries for the southern hemisphere’s upcoming winter.

Double bluff
As in any game of chicken, there’s the chance for one side or both to pull away from the brink. While Europe needs the gas, the continent remains the only potential market in the near term for production from Russian fields.

Turning off the tap now may permanently close the door on Russian energy imports to its neighbor, choking off a key source of revenue in the process. Germany, which has been criticized for cautious support of Ukraine, would face renewed pressure to stand up to Putin more forcefully.

As a result of strong demand, U.S. natural gasoline prices soared to their highest intraday levels in more than 13 years.

• Despite a drop in backup inventories, production is still flat
• Strong demand from Europe has almost pushed LNG exports to the limit

Futures rose to $7.558 per million British Thermal Units, surpassing January’s -fueled the rally. This was roughly twice the level at the beginning of the year.

As suppliers struggle to keep up with a surge in demand after a pandemic, a global fuel shortage is emerging across the markets. This situation is further complicated by the conflict in Ukraine. This discount is shrinking, even though U.S. natural gasoline prices have been well below those in Europe and Asia over the past year due to a bounty from shale fields.

The underground caverns and the aquifers holding backup inventories are lower than normal, and production is flat. To help Europe reduce its dependence on Russian energy, the U.S. is currently exporting every molecule possible of liquefied gas.

According to the National Oceanic and Atmospheric Administration, temperatures below normal are expected in parts of the northern U.S.A. between April 25 and May 1. This could lead to an increase in demand for heating and power-plant fuels, which would divert supply from storage that is normally used during this time. The U.S.’s shortage of coal has also contributed to the rise in gas prices, which has limited power generators’ ability to switch fuels.

According to the Energy Information Administration, inventories increased by 15 billion cubic yards in the week ending April 8, which was less than half of the average gain over the past five years. Stockpiles are still 18% lower than usual.

Russia’s invasion of Ukraine could force Europe to delay key decarbonization efforts for up to a decade, a prominent regional energy expert has warned in Greece.

Now that Europe is moving to reduce imports of Russian oil and gas, he explained, some of the measures expected to reduce carbon emissions may have to be put off “for eight, nine, maybe 10 years,” as would planned shutdowns of nuclear generating stations.

“The European Union will need to provide the necessary permissions in some cases, plus financing in others,” he said. “Eight to 10 nuclear plants and as many as 30 coal stations slated for decommissioning will have to remain online to keep up with electricity demand, and several projects required to replace Russian gas will need to be accelerated with additional funding and/or guarantees.”

Coordinated releases of strategic oil reserves by the US and other countries are helping to contain upward pressure on crude and other energy prices, he said, but reasonable levels “cannot be maintained unless more supply makes it to market and that means oil producers –primarily OPEC but others as well – have to start pumping more.”

On yet another front, “Spain has both spare LNG receiving capacity and an undersea pipeline for imports of gas from North Africa – but very little of that can reach the rest of Europe unless and until a new pipeline connects the Iberian Peninsula to the rest of Europe via France,” said Baroudi, who has been advising companies and governments on energy policy for decades. “Paris has recently voiced new openness to that idea, but the EU can and should do more to facilitate it. It should also do more to establish an agreed route for another pipeline to carry gas from the Eastern Mediterranean to Greece and/or Turkey.”

Baroudi also argued that the EU would be wise to ensure adequate capital flows into renewables such as wind and solar. “We might have to retain fossil fuels longer than we had planned, but that’s no reason to stop funding a cleaner future,” he said. “In fact it’s a reason to move as quickly as possible.”

(Bloomberg) — Gazprom PJSC’s average daily exports to key foreign buyers so far in April fell to lowest in three months, as warmer weather and lower spot prices started to lure European clients away from Russian gas. The gas giant exported an average of 407 million cubic meters a day to countries outside the former Soviet Union in the first 15 days of April, according to Bloomberg calculations b

The gas giant exported an average of 407 million cubic meters a day to countries outside the former Soviet Union in the first 15 days of April, according to Bloomberg calculations based on a Gazprom statement published Friday. That’s nearly 18% below the daily average for the month of March. The company’s year-to-date exports to its key markets tumbled more than 26% compared to the same period of 2021 to 44.6 billion cubic meters, Gazprom said.

“Russian flows have been reduced and LNG imports strengthened in the last few days, as a result of the TTF day-ahead price falling, making spot volume prices more competitive compared to TTF-indexed Russian pipeline gas,” Rystad Energy analyst Vinicius Romano said in a research note earlier this week.

The European Union depends on Russia for 40% of the gas it consumes, which makes it challenging for the alliance to stop the purchases immediately in retaliation for Moscow’s invasion of Ukraine. However, the bloc is trying taking steps to wean itself off Gazprom supplies, with EU governments starting to assess alternative supply sources.

Moscow’s demand that so-called “unfriendly” countries pay for gas deliveries in rubles starting from April is creating additional pressure on its clients to find alternative supplies, as the Kremlin has threatened to cut off exports to buyers that refuse to comply.

Gazprom doesn’t provide a detailed export breakdown by country, making it difficult to assess supplies to Turkey and most of Europe, the key market for the company’s foreign deliveries. Russian daily flows toward the borders with European nations have averaged nearly 324 million cubic meters between April 1-12, compared with 361.5 million cubic meters per day in March, according to Gazprom data.

Gazprom said it continues to supply gas in line with requests from consumers and is in full compliance with its contractual obligations.

The EU Commission’s plan to eventually have the continent’s gas storages 90% full by the start of winter is “very ambitious,” Gazprom said in the statement. That would imply reinjections of 63 billion cubic meters, which is higher than the volume of gas stored during the warmer months in recent years and still would not cover peak demand if winter is abnormally cold, according to the Russian company.

Gazprom’s daily output between April 1-15 averaged 1.393 billion cubic meters, according to Bloomberg calculations. That’s 4.3% below the average over the whole of April 2021. Since the start of the year, the producer pumped 155.9 billion cubic meters of natural gas, down 1.3% year on year, according to Gazprom’s data.

Russia’s year-to-date domestic gas consumption declined 3.6% compared to the same period in 2021 amid warmer weather in February, Gazprom said.

— With assistance by Helen Robertson

RABAT, April 15 (Reuters) – Morocco is studying options at several ports to build a floating or land-based facility to import liquefied natural gas (LNG), Energy Minister Leila Benali said on Friday.

Morocco relied for much of its gas needs – about 1 billion cubic metres (bcm) annually – on a pipeline that used to channel Algerian gas to Spain, until it was halted last October by Algiers, against the backdrop of worsening relations between the Maghreb’s most populous countries.

Whether floating or onshore, studies are underway to choose the “most immediate solution”, Benali told reporters.

The country tendered in January for a study on the upgrade of Mohammedia port near Casablanca to host an LNG floating storage and regasification unit (FSRU).

Mohammedia and the Mediterranean port of Nador appear to be best equipped to host regasification terminals, she said.

“But we can prepare four ports at least,” she said, citing Kenitra and Jorf Lasfar ports.

“It is important for Morocco’s energy sovereignty to have regasification capacity on our territory and in our maritime space,” she said.

Morocco will enter the international LNG market “in the upcoming days,” making use of unused capacity at Spanish terminals, she said, without giving further details.

Though she said: “We are not importing Spanish or European LNG.”

“Transit issues have been settled,” she said.

In addition to Spain, Morocco discussed in November with Portugal and France about tapping into the under-used regasification capacity.

“They have regasification terminals that are under-used, and we have a pipeline that has to be used,” Benali said.

The pipeline is key to feeding two small power plants that supply Morocco’s northwest and northeast, which currently rely on the national grid.

(Bloomberg) — Iraq’s cabinet may reactivate a deal with Halliburton Co. to drill wells in a western gas field in Akkas next month, Oil Minister Ihsan Abdul Jabbar told local media.

An agreement with Halliburton would enable the oil ministry to get clear data on the production capacity of the Akkas field and it may reach a decision after the Islamic holy month of Ramadan, which ends in early May, the minister said.

If the government decides to develop the field, which has been idle since Baghdad retook it from Islamic State militants in late 2017, it would have to pick a production company for the project.

Officials have been in talks with Chevron Corp. and Saudi Aramco about investment in the region. That “will depend on the data we get from the exploration and well-drilling operations,” Abdul Jabbar said in an interview on Al-Forat channel.

Kurdistan Talks

Abdul Jabbar said 80% of the contracts that the Kurdistan Regional Government signed with oil companies are correct and the rest need to be reviewed. The KRG has no problem with half the solutions the federal government offered to resolve the oil issues in Kurdistan.

The Kurdish region exports 430,000 barrels of oil per day, Abdul Jabbar said.

Baghdad has long sought to bring Kurdish production under its control in exchange for funds from the national budget. A February ruling in Iraq’s top court asserted the central government’s right to the semi-autonomous region’s hydrocarbons. The KRG has said its rights to control the region’s oil and gas are enshrined in the Iraqi constitution.

High Oil Prices

Iraq will probably sell its oil for an average of $106-$107 a barrel this month if prices remain at current levels, the minister added.

The oil ministry is providing 30 million liters of gasoline a day for local consumption, which Abdul Jabbar called a “big” number. Work on a new refinery in Karbala has been delayed by Covid-19 but the facility is expected to enter service in the first quarter of 2023, he added. The country will continue to import gasoline until 2024.

Qatar, Iran and Saudi Arabia are the “bright spots” for Middle Eastern gas output over the next three decades, the Gas Exporting Countries Forum (GECF) has said in a report.
In its Global Gas Outlook 2050, GECF said between 2020 and 2050, the natural gas supply is set to climb by an annual average growth rate of 2.4% in Iran, 2.2% in Qatar and 1.2% in Saudi Arabia.
It said Qatar aims to maintain its status as the top LNG producer and exporter in the world. The planned expansion of production from the North Field and other fields will increase Qatar’s total gas production by an overall of 91%, from about 175 bcm last year to 330 bcm in 2050.
National oil companies in the Middle East are focusing on developing their gas fields. As most of the countries in the Middle East are also crude oil producers, the majority of natural gas production in the region is associated gas.
With almost 17% of global gas production, the Middle East is the third-largest gas-producing region worldwide after North America and Eurasia. The region is a net exporter of gas, and supply has been growing rapidly by an annual average growth rate of 6.3%, from about 190 bcm in 2000 to around 650 bcm in 2020.
According to GECF, associated-dissolved natural gas (gas obtained from crude oil reservoirs) has always been accounted for as a share of total gas production. This gas can be found as free gas (associated) or in solution with crude oil, referred to as dissolved gas.
Like the impact that Covid-19 had on non-associated gas production, the demand for oil also declined in 2020, resulting in a lower level of associated gas production in that year.
According to the EIA, associated gas production in the US fell in 2020 by 1.5% reaching a level of around 140 bcm, following three years of growth. For the first time since 2016, the share of associated gas production in the US was reduced to almost 37.7%.
The GECF report forecasts that the demand for oil will stabilise through to 2050 and the level of global oil production will peak at slightly more than 100 mboe/d in around 2035 and will steady at around 90 mboe/d by 2050.
This lower level of crude oil production will consequently affect the level of associated gas production. Furthermore, the need for EOR measures by the injection of associated gas into oil wells will be magnified by the ageing oil reservoirs.
“So a lower level of associated gas will reach the market, and the total volume of production from this category in the future is forecast to be lower than current levels,” GECF said.
Currently, it is estimated that slightly less than 500 bcm of marketed natural gas is sourced from oil wells, and this level excludes the volume of the gas obtained from unconventional crude oil production.
The total level of associated gas production is even higher than this, as injection and recirculation do not count in marketed production, GECF noted.

Western governments must be clear about what sanctions can and cannot achieve – and how much sacrifice is acceptable

The grim scenes left behind after Russia’s withdrawal from Bucha, where Ukraine accuses Russian troops of torturing and slaughtering civilians, have intensified pressure on the West to provide more offensive weapons to Ukraine and for Europe to ban Russian energy imports. But beyond the legitimate question of Europe’s willingness to pay such a high price on Ukraine’s behalf lies the stark reality that sanctions are hardly a silver bullet.
Calls for sanctions began well before the invasion. When Russia was massing troops near Ukraine’s border, the Ukrainian government – and some American lawmakers – urged the United States and Europe to impose preemptive sanctions and offer Ukraine stronger security guarantees. But Western leaders demurred, arguing that sanctions would impede their ability to reach a diplomatic solution.
Of course, in geopolitics, as in life, hindsight is 20/20: we now know that those diplomatic efforts were in vain. What we do not know is whether preemptive sanctions would have motivated Russian President Vladimir Putin to rethink his plans, especially given that preemptive sanctions most likely would not have been as severe as the package of measures imposed after the Kremlin launched the invasion.
That package, after all, is the most comprehensive and co-ordinated punitive action taken against a major power since World War II. Overcoming initial reservations, the European Union joined the US in cutting off Russian banks from the arteries of global finance in a matter of days. The West also froze much of the Russian central bank’s foreign-exchange reserves – an unprecedented step that surely triggered a red alert in China, with its $3.25tn in official reserves.
At first, the sanctions seemed to be having the intended effect. Within a week, the rouble had fallen by a third against the US dollar. Tumbling share prices forced the authorities to suspend trading on the Moscow stock exchange for nearly a month. Russia’s GDP is expected to contract by 10-15% this year.
But, even as the sanctions vise continues to tighten, Russian markets appear to be stabilising. Thanks to robust intervention by the authorities, the rouble is now trading close to its pre-war levels, and the stock market has recovered some losses. With the violence showing no sign of abating, Western governments must be clear about what sanctions can and cannot achieve – and how much sacrifice is acceptable.
Sanctions, first used in the Peloponnesian wars, have been an instrument of foreign policy for some 2,500 years. While their sophistication and complexity have increased over time, the basic mechanism has remained the same: inflict enough economic pain to force the target to change its behaviour.
But the most comprehensive analysis of sanctions use, conducted by researchers at Drexel University, found that the goals of sanctions were completely met in only 35% of cases. Where sanctions have had an impact, such as in South Africa during apartheid, they have been combined with other measures to advance a specific foreign-policy objective.
Moreover, even well-targeted sanctions and asset freezes have limited efficacy against autocracies. From North Korea to Iran, regimes shield themselves from economic pain through convoluted schemes to evade sanctions. Putin’s regime – including his cronies – has proved adept at ensuring that sanctions do not affect them.
Instead, it is ordinary Russians who will pay the price for today’s sanctions. And, contrary to the hopes of some in the West, this is unlikely to lead to Putin’s fall from power. Dictators are not particularly vulnerable to shifts in public opinion. And a revolution does not seem forthcoming, not least because of the work of the Kremlin’s increasing repression and powerful propaganda machine.
By “cancelling” Russian culture and mounting “unprovoked” attacks on the country’s economy, the Kremlin narrative goes, the West is trying to destroy Russia – just as Putin had long warned. Anyone in Russia who opposes the “special military operation” in Ukraine is a “traitor” or a “gnat,” ready to “sell their souls.”
With no independent media left to refute these narratives, Russians seem to be largely convinced. A recent poll by the Levada Center indicates that 83% of Russians approve of Putin’s actions in Ukraine, compared to 69% in January – a relevant statistic, notwithstanding the complex realities in Russia.
While Putin’s regime insulated itself from the pain of sanctions, Europe is facing high costs of its own. In today’s economically interdependent world, sanctions often imply hefty costs for both sides. Though Western economies are not particularly dependent on Russia overall, Europe relies on it for a large share of its energy. So, while the US Congress votes to ban all Russian energy imports, EU leaders have targeted only Russian coal, not oil or gas.
A comprehensive ban on Russian energy imports to Europe would undoubtedly increase the pressure on the Kremlin. But such a decision must be approached with care. As German Chancellor Olaf Scholz recently warned, the economic and social costs of a sudden embargo would be massive. It will take time to wean Europe off Russian natural gas while also maintaining European social and economic stability.
Equally important, sanctions are an integral part of a broader negotiating strategy. Once the West has launched all its biggest economic weapons, it will have no remaining leverage. There must be room to escalate in response to Putin’s actions, particularly the deployment of chemical or tactical nuclear weapons.
The West’s arsenal in Ukraine is clearly limited. Sanctions are an important and powerful weapon, and they are putting some pressure on the Kremlin. But given their limitations – and the costs that must be borne by both the West and ordinary Russians – they must be used judiciously. Otherwise, Putin, who appears to believe his paranoid propaganda and oversees the world’s largest nuclear arsenal, may conclude that he has nothing to lose. — Project Syndicate

• Ana Palacio, a former foreign minister of Spain and former senior vice president and general counsel of the World Bank Group, is a visiting lecturer at Georgetown University.