The Economist - USA (2022-01-29)

26 Europe TheEconomistJanuary29th 2022

shutdownitsnuclearplants,itremains

morereliantonnaturalgasthanit needbe.

It is Europe’s largest consumer of gas,

whichaccountsforroughlya quarterofits

total energy consumption, with Russia

supplyingoverhalfofitsimports.

Thegoodnews isthatEurope’senergy

systemismoreresilientthanit wasduring

thecrisisof2009.AndreasGoldthauofthe

UniversityofErfurtinPotsdampointsto

some useful changes. Pro­competition

measures(likea banon“destinationclaus­

es”thatforbidtheresaleofgas)haveweak­

enedGazprom’sgrip.Adensewebofgas

interconnectorsnowlinkspreviouslyiso­

latedcountries(seemap).

Another source of cheeris liquefied

naturalgas(lng). Heavyinvestmentsinre­

gasificationplantsmeanthatEuropehas

plentyofidlecapacity.Citigroupestimates

thatwith historical utilisation rates for

thoseplantsrunningat50%ofcapacityor

less, the region can in theory handle

enough to replace nearly two­thirds of

Russianpipedgasimports.Sothelimiting

factorisnotregasificationcapacity,butthe

availablesupplyoflng. Sinceittakesa

longtimetoexpandnewproductionand

exportcapacity,Europe’sbesthopewould

betogetholdofexistinglngcargoesorigi­

nallydestinedforelsewhere.

OneinvestornotesthatwhenEuropean

pricesshotupthreefoldbetweenOctober

andDecemberlastyear“anarmadaoflng”

sailedtoEuropeascargoeswerediverted

fromAsia.Thisinflowoffseta declinein

Russiangasimports.Marketrumourssug­

gestthata newarmadaiscoming.Chinese

state­owned energy firms, envisaging

quickprofitsfromhighEuropeangaspric­

es,arehopingtoselldozensoflngship­

ments.MassimoDiOdoardoofWoodMac­

kenzie,aconsultancy,addsthatbecause

thejourney fromAmerica to Europe is

shorterthantheonetoAsia,lngtankers

cancompletemoretrips—squeezinganex­

tra10%orsoinexportcapacitytoEurope.

Alltold,hethinksextralngcouldfill15%

oftheshortfallthatwouldresultfroma

completeRussiancut­off.

Another source of resilience is the

amountofgasheldinstorage.Lastyear’s

bitterwinter,alongwithGazprom’sreluc­

tancetofillstorageunitsitcontrolsinEu­

rope,leftgasstorageatlevelsbelowthe

five­yearnorm.Evenso,Rystad,anenergy

researchfirm,calculatesthata continua­

tionofnormalweatherthiswinterwould

leaveenoughgasinstoragebyspringto

makeupfortwomonthsoflostRussian

gasexports.Someanalystsbelievetheex­

cessmightevencoverfourmonthsofa

cut­off,thougha coldsnapwouldreduce

thisbufferquickly.

Europealsohasa secretweapon.MrDi

Odoardo pointstoitsmassivebut little­

discussedstoresof“cushiongas”.Fortech­

nicalandsafetyreasons,regulatorsinsist

that storage units like saltcaverns and

aquifersmaintainahugeamountofgas

thatisnotnormallyavailabletoputonthe

market.TheanalystsatWoodMackenzie

reckonthatuptoa tenthofthiscushion

canbeusedwithoutcausingproblems.If

regulatorsgavepermission,astheymight

ina war­inducedcrisis,thatwouldamount

towelloveramonth’s­worthofRussian

imports.

Insum,Europewillsufferif Russiacuts

offthegas;butthatpricewillbepaidfrom

the wallet rather than throughphysical

suffering. That costwillbe exacerbated,

predictsJonathanElkindofColumbiaUni­

versity, because “Europe is not starting

fromcalm,butfroma marketonedge.”The

continent’senergymarketshaveonlyjust

beenthroughanearly­winterpriceshock,

andthepriceoutlookforallenergycom­

moditiesisugly.JPMorganChasepredicts

that,evenwithoutaRussiangascut­off,

Europewillspendsome$1trnonenergy

thisyear,upfrom$500bnin2019.Ifthere­

gionwereforcedtoconsumeitsgasstocks

tosurvivea Russiancut­off,itwouldthen

havetospendevenmoreduringsummer

franticallyrebuildingitsreservestoavoid

anenergycrisisnextwinter.

Thatisanunpleasantprospect.Buta

biggerpricewouldbepaidbyRussiaover

thelongerterm.OnesourcenotesthatGaz­

prom wouldface “massive”commercial

fallout,rangingfrompenaltiespayableto

customerstoahaltindollarsflowingto

Russia for contract payments. Gazprom

wouldfinditdifficulttosecureanylong­

termcontractsinEuropeaftersucha dis­

playofaggressiveunreliability. Andthe

NordStream2 pipelinesocherishedbyMr

Putinwouldsurelybitethedust.Ashut­

down might evenpersuade China, now

cautiously importingmore Russian gas,

thatitslong­standingconcernsaboutRus­

sianreliabilityarewellfounded.

MrVictorarguesthatsucha brazenuse

oftheenergyweaponwouldprobablylead

Europetotrymuchhardertocutitsdepen­

denceonRussianexportsofgas“lessbe­

causetheyareinsecureandmorebecause

therevenue...iswhatfundsRussianbadbe­

haviour.”AsMrGustafsonpithilyputsit:

“If Putin wanted to destroy Gazprom’s

businessinEurope,hecouldn’tgoaboutit

ina betterway.”n

Tu r k S t r e a m

(31.5bcmpa)

Blue Stream

(16bcmpa)

NordStream1 &†

(both 55 bcmpa)

Yamal

(33bcmpa*)

ViaUkraine

(40bcmpa)

RUSSIA

GERMANY UKRAINE

ITALY

Source:JPMorgan

*Billioncubicmetresper annum

†NordStream notyetoperational

Europe’s gas-pipeline network

Theoretical capacity of selected pipelines

Spot the problem

Gas imports from Russia, % of total

2021, selected European countries

Sources:Eurostat;Rystad

Sweden

Spain

Britain

Netherlands

France

Italy

Germany

Poland

Hungary

Lithuania

Finland

Slovakia

Austria

100806040200

1

19

32

38

21

31

27

13

32

2

11

3

19

Natural gas,

% of total energy

consumption,

nil 2020 or latest

nil

GermanyandRussia

Misplaced

sympathy

A

camera stoodnext  to  the  table,  live­

streaming the proceedings. But if Vice­

Admiral  Kay­Achim  Schönbach,  the  head

of  the  German  navy,  did  not  know  he  was

speaking on the record, it did not take long

to  find  out.  He  told  a  think­tank  in  Delhi

that  Vladimir  Putin  wanted  respect,  and

“probably  also  deserves”  it.  The  West

should  recruit  Russia  as  an  ally  against

China, he added; something he, as a “radi­

cal Roman Catholic”, would welcome.

One  viral  video  clip  and  a  very  public

brouhaha  later,  Mr  Schönbach  was  gone.

The pace of his departure showed that Ger­

many’s  government  will  not  tolerate  such

comments  when  an  unprovoked  Russian

attack on Ukraine is looming. Yet to many

foreign  observers  the  admiral  was  merely

voicing soft­on­Russia sentiments that are

widespread among German decision­mak­

ers.  Ukraine’s  foreign  minister  has  said

Germany’s  refusal  to  send  his  country

weapons  is  “encouraging  Vladimir  Putin”.

The  wife  of  a  former  Ukrainian  president

proposed  a  boycott  of  German  cars.  Even

natoallies like Poland publicly bristled. 

There  is  much  to  grouch  about.  Ger­

B ERLIN

Germany’s new chancellor dithers over

Russia’s threats to Ukraine