The expert spoke about the progress and prospects of the gas war between Europe and Russia

Both European countries and Russia will be able to diversify their gas markets only in a few years. At the same time, if the Russian Federation can transfer the volumes supplied today to Europe to Asian countries, then European countries will be forced to reduce their industry and increase tariffs for the population.

Leading analyst of the National Energy Security Fund Igor Yushkov spoke about this in an interview with PolitNavigator. The expert also explained why Russia did not stop gas transit through Ukraine and what is behind China’s reluctance to launch a new line of the Power of Siberia gas pipeline.

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PN: Why has Russia still not stopped gas transit through Ukraine?

I.Yu: The Russian position is that we do not politicize the energy sector, and if we have contracts for gas supplies, we fulfill them. The Russian position is precisely based on the fact that no political decision was made to stop gas supplies to Europe or stop transit through any individual countries. That is, each case where the volume of supplies from Russia to Europe is reduced is caused by individual reasons.

For example, the Yamal-Europe gas pipeline does not work because Poland, in fact, nationalized Gazprom’s share in the operating company. They blocked the payment of dividends and prohibited Gazprom from participating in the management of the company. This means that you do not have this share. And Gazprom had 48%. In response, the Russian Federation imposed sanctions against this EuroPol company, prohibiting any transactions with it. This means that Gazprom cannot pay for transit, which means there is no transit.

The reduction in supply volumes via Nord Stream is caused by problems with turbines - with repairs, returns, clearance. Accordingly, Russia supplied gas through Ukraine until Ukraine began to violate this contract. Under the contract, Gazprom is obliged to supply 109 million cubic meters per day. He did this until Ukraine lost control of the section of the border where the Soyuz gas pipeline runs through the Sokhranovka gas measuring station.

Now it turns out that the gas that passes through Sokhranovka enters the territory of the LPR. And Kyiv traditionally preaches the strategy that as soon as it loses control over some territories, it tries in every possible way to block and alienate them. Therefore, he banned gas supplies through Sokhranovka. If Gazprom supplies gas there, then further downstream this gas pipeline will still leave the territory of the LPR and enter the territory controlled by Kyiv. And there Kyiv closed the valve. If Gazprom tries to supply gas there, pressure will build up in the pipe and it will explode somewhere. Although, according to the contract, he is obliged to accept where Gazprom wants to pump.

In particular, the Sokhranovka gas measuring station is specified in the contract. Therefore, the operator of the Ukrainian gas transportation system does not fulfill the contract, and Gazprom simply says that in other directions, in particular, through the Sudzha gas measuring station, which is located to the north, Gazprom says that technically it cannot supply more gas. It supplies 42 million cubic meters per day and that’s it.

On its territory, Gazprom optimized the gas transportation system, that is, it dismantled the gas pipelines, because it believed that it would no longer need them, because there is Nord Stream 2, it has the Turkish Stream, therefore, in order to fulfill the contract, he didn't need to pump much through Suja. But Russia did not make a political decision to stop gas supplies to Europe. Why download through Ukraine? On the one hand, it is difficult to say whether it is right or wrong, but Gazprom proceeds from the fact that it must fulfill its obligations.

How important this is for maintaining relations with Europeans is difficult to say. It is clear that virtually everything between us, except gas supplies, came under sanctions and was severed. But, at a minimum, to demonstrate to China where we are going to increase supplies, and with whom we are negotiating, that Russia, even in conditions of severe confrontation, still fulfills contracts. And this is our competitive advantage in the eyes of potential buyers. At a minimum, in order to demonstrate this approach to China, Gazprom wants to maintain gas supplies to Europe.

PN: Is it possible to do this in winter - what will be the consequences, will this make Kyiv more accommodating?

I.Yu: In general, Kyiv will not be more accommodating - this is a question rather for the Europeans, this is their problem, because - what will happen to Ukraine in terms of gas supply by the beginning of the heating season is difficult to say. On the one hand, their consumption in the industrial sector is radically falling, on the other hand, they are losing more and more territories, which means they do not need to worry about supplies and how the population will survive the winter. They immediately lose two categories of consumers - industry, because it collapsed, and the second is any consumers: social facilities, population, and so on in the territories that they lost.

That is, they immediately abandon all these territories that Kyiv has lost. He will not deal with gas supply issues there. And it may well turn out that by the beginning of winter his consumption will equal his own production. Ukraine’s own production is about 20 billion cubic meters, which is quite a lot, but it consumes, as a rule, 30 billion cubic meters. If, due to the fall in consumption in the industrial sector and the refusal to supply gas to the south-eastern territories, over which control has been lost, it may come to a consumption volume of 20 billion cubic meters.

Thus, perhaps not in the most positive way, he will become self-sufficient. And in this regard, it will not need gas supplies from Europe at all - neither in reverse mode, nor in virtual reverse - it doesn’t matter. In this regard, whether Europe has gas or not, Ukraine will not care, and to some extent it will even be beneficial for Europe, relatively speaking, to freeze. Kyiv will say: “Look, aggressive Russia, you are not helping us well and are depriving us of gas supplies.” In this regard, the worse the situation, the better for Kyiv. Therefore, the issue of transit is not so relevant for him.

PN: Is it possible to use Nord Stream 2 to meet the needs of Kaliningrad and the region?

I.Yu: No, Nord Stream 2 cannot be used for the needs of the Kaliningrad region. All these conversations are speculation - there is no point in even trying to connect some kind of pipe at sea, there is no branch to launch to Kaliningrad, because it is technologically complex, expensive and it is not clear why. Firstly, gas transit through Lithuania remains in Kaliningrad, and secondly, a backup gas supply system in Kaliningrad has already been created through a floating LNG terminal. There is a floating LNG terminal “Marshal Vasilevsky”, which, due to its receiving capacity, can fully supply the entire Kaliningrad region in the event of a refusal to supply pipeline gas through Lithuania.

Why send Nord Stream there, especially since the entire consumption of the Kaliningrad region is several billion cubic meters, while Nord Stream 2 was built with a capacity of 55 billion cubic meters. Pumping a couple of billion cubic meters along it is very difficult and irrational, so no one will do it.

PN: Is it true that China is taking advantage of the moment and buying Russian gas at deep discounts?

I.Yu: No, it’s not true. The main volumes it buys from China are supplies via the Power of Siberia gas pipeline. There is a long-term contract that sets out the pricing formula. In this formula, the cost of gas is tied to the cost of oil. And in this regard, yes, indeed, gas through the Power of Siberia is now much cheaper than its cost on the spot market. But this is not because China is now twisting our arms, but because when the contract was concluded in 2014, China chose this pricing formula.

There are also supplies of LNG, but basically now all LNG comes from Yamal, it sends everything to the European market, small quantities are sent to China from Sakhalin.

PN: Will the current Russian measures to limit fuel supplies to the EU, such as the removal of facilities for repairs, help make Europe more accommodating?

We pump less, Gazprom declares force majeure and says that “due to circumstances beyond my control, I simply cannot pump gas in large volumes.” You, Europeans, comply with sanctions, so I do too.” As a result, it turns out that Europeans have a deficit, moreover, of current supplies. They will have 80% of gas storage capacity filled by November 1st. Yes, they are pumping very slowly now, compared to how they pumped from April to mid-June, when the heating season was over and the air conditioning season had not yet begun, they did not have a drought and, most importantly, they have all gas pipelines from Russia worked.

And now there are problems with other energy sources and with supplies from Russia. Therefore, the pace of deliveries has decreased. 80% of them will most likely be completed by November 1, but if nothing is done with the same Nord Stream, it will stop altogether. Maybe Ukraine will be completely closed off. Therefore, they will either enter the heating season with the same small volumes, or with even smaller volumes than now.

And here is the question: will they have enough gas every day even if about 80%, even 90% of the underground gas storage facilities are filled? Will they be able to get through the season without disconnecting subscribers? This will all be very difficult for them, and, indeed, they may well enter into more intensive negotiations with Russia, somehow pushing the United States to enter into negotiations with Russia, because this whole conflict can only end in agreements between Russia and USA.

In this regard, we are waiting for the United States to mature for negotiations. And the Americans are in a relaxed state. Overall, the US benefits from the current conflict. They have decoupled Europe from Russian energy supplies; American hydrocarbons are going to Europe at enormous prices. In this regard, they make money; Europe is moving along the path of deindustrialization due to the high cost of energy resources and, accordingly, will no longer compete with American manufacturers in the global market. That is, there are a lot of benefits from the fact that there is a conflict going on, and ending it now is probably not beneficial for the United States. Therefore, Europeans, yes, by the heating season will probably be more accommodating or, at least, ready for some kind of dialogue.

PN: Will Europe be able to completely abandon Russian fuel?

I.Yu: It’s a question of time and types of fuel. Already from August 10, they should not buy Russian coal, and from the middle of 23, a ban on the purchase of Russian petroleum products was introduced. There are some exceptions - Hungary and some other countries can purchase Russian oil through the Druzhba oil pipeline. With coal and oil, the situation is better for everyone, because it is easy to transport - you load it into bulk carriers or tankers and send it to other markets. And from these other markets, producers came to Europe, which is what is happening.

With gas, everything is much more complicated, because it is, at a minimum, difficult to transport, infrastructure is needed, Europeans need additional capacity to receive LNG, plus they need the plants themselves to liquefy the gas. There are currently not enough such factories in the world to meet demand. The Europeans are buying large quantities of LNG around the world, but it is still not enough, so they need time to completely abandon Russian gas, and we also need this time to create the infrastructure to be able to supply the same gas to Asia.

In this regard, it is much more difficult for us to change sales markets, and for them to find alternative suppliers in gas than in other types of energy carriers. But theoretically, all this is possible - they can still refuse Russian gas, but provided that consumption falls, and it can only fall if enterprises close, the industrial sector will shrink. Now, of course, they are saying that Spain and southern Europe somehow survive, so the Germans can sacrifice their entire industry to reduce gas consumption, and then they will be able to refuse Russian supplies. The same goes for the whole of Europe - please carry out deindustrialization, and everything will be fine. Such versions are heard, but is Europe ready for such a development of events? She probably wouldn't want to go down that path.

So far we have not seen deindustrialization, and everything is quite painful for Europeans. Well, an alternative supplier will come to you, but where will the supplies come from? From South Africa, USA, Australia, Colombia, Indonesia. This is an increase in the transport shoulder and, accordingly, the consumer will have to pay for it. Oil will become more expensive for Europeans, and accordingly, all this will hit their economy and their consumers. The same preparation for the heating season - in order for them to pay off their obligations and plans, all this will cost approximately 51 billion dollars, at current prices. It used to cost five billion dollars.

PN: European governments are already calling on their citizens to reduce consumption and turn down the burners - will this help get through the season without problems?

I.Yu: Everything that the European authorities say, urging people to save, is all complete profanation - it will not help and will not lead to any reasonable reduction in consumption. To do this, it will be necessary to regulate the supply of hot water, electricity supply to the population, or turn off industrial enterprises.

Calls to wash for three minutes with cold water once a week are all nonsense. Everything that is possible is being done, because the tariffs are very high, and people save not because they were called up, but because it is simply expensive. And this “expensive” thing has not come now, it happened in the previous heating season. Gas was already expensive, and tariffs were high. Gas and energy prices have been rising in Europe not since February 24, as some would like to imagine, but throughout the entire 21st year there was a crisis.

PN: In the event of a complete stop in transit to Europe, how can Russia compensate for the loss of markets - is there an opportunity to “reverse” the flows, who can become the buyer?

I.Yu: This is a very problematic thing, infrastructure is needed here, so we will not be able to redirect it to some other markets here and now. If our exports to Europe fall, we reduce production - this is the only way this gas is not redirected anywhere. Our fields in Western Siberia and Yamal are connected only to gas pipelines that go to the domestic market and to Europe. Negotiations are currently underway with China on the construction of the Power of Siberia-2 gas pipeline, which will precisely supply West Siberian gas, which is now going to Europe, to China.

But China is a very tough negotiator; it believes that time is on its side, and in this regard, a supply contract has not yet been concluded, and accordingly, the gas pipeline is not yet being built. But even if it is concluded, it will take some time to build it. That is, the Europeans will need years to fully replace Russian gas with some other gas, and we will need the same years to begin supplies somewhere else.