/ world today news/ Europe will have to negotiate with Gazprom and conclude a tough deal for itself. This will be the EU’s retribution for American adventures, said Russian businessman Oleg Deripaska. Under what conditions is it possible to restore the lost volumes of gas exports to Europe? And what will it look like technically?
Europe will have to turn to Russia for gas supplies as the winter may be cold and the transition to renewable energy will take a long time, Russian billionaire and businessman Oleg Deripaska said on his Telegram channel.
According to him, Europe will have to make a deal with Gazprom, but under strict conditions, including compensation for losses from sanctions and compensation for blowing up the Nord Streams.
“Yes, this is a high price for American adventures, but it is still cheaper and more profitable than buying unnecessary weapons worth trillions of euros and, moreover, losing such a sweet Russian market,” Deripaska believes. He admits that this realization may not happen immediately, but cold winters could speed up the adoption of a compromise with Russia by up to a year and a half.
“I think there is little chance that European buyers will fully recover Russian gas pipeline purchases. However, some supplies may indeed return if any of the pipelines are opened. For example, in the future, the surviving Nord Stream-2 line and the Ukrainian transit may work. And transit through Ukraine on the southern route may be the first to be opened. Ukraine’s desire to make money should not be underestimated,” says Igor Yushkov, an expert at the Financial University of the Government and the National Energy Security Fund.
Now, gas supplies to Europe through Ukraine are carried out, but only on the northern route, and the southern route is closed at the initiative of the Ukrainian side. As a result, instead of the agreed 109 million cubic meters per day, Gazprom can deliver through Ukraine half as much – a maximum of 43 million cubic meters per day.
European countries have not imposed sanctions on Russian gas and would happily buy more, but Gazprom cannot deliver all contracted quantities due to physical restrictions on pumping routes. Only a few countries refused to buy gas from Russia using ruble payments, notably Bulgaria, Poland and Finland. Most Europeans continue to buy Russian gas, but in reduced quantities.
Transit through Ukraine was forced to halve. Both lines of Nord Stream 1 were damaged by explosions, and one of the two lines of Nord Stream 2 was also destroyed. The Yamal-Europe gas pipeline, which passes through Poland, is also blocked. Warsaw nationalized Gazprom’s stake in the company that operates the pipeline, and in response, Russia imposed a ban on gas supplies along the route.
Deliveries continue via Turkish Stream (15.75 billion cubic meters per year) and through Ukraine in a reduced volume (about 15 billion cubic meters per year).
Under what conditions can the supply of Russian gas to Europe be increased? “For that to happen, the political situation has to change. There must be a formal reason, either an agreement to cease fire, let alone a peace treaty. Then there will be an opportunity to act in the economic sphere – to remove the sanctions and any steps forward, including the restoration of gas supplies to European countries. Now everyone is afraid to do something in this direction”, says the FNES expert.
It’s hard to say when that might happen. “However, the rhetoric in Europe has started to change. If earlier the head of European diplomacy Borel said that diplomacy is not needed, but that we should fight, now the head of NATO admits that they underestimated Russia and it is necessary to change the strategy”, notes Igor Yushkov. We can only hope that the situation will be resolved next year.
As soon as there is a political opportunity to do so, Germany can give permission for the operation of the intact second line of Nord Stream 2 and put it into operation.
“The capacity of this branch is 27.5 billion cubic meters. This year our total exports to the EU are likely to be even lower. That is, with just one branch of the Nord Stream, the volume of supplies can be doubled,” Yushkov points out.
Germany itself will be interested in this as soon as the political situation changes. Because it was the German economy that suffered the most in the EU from the loss of access to cheap Russian gas.
The German economy fell into recession and it is still not possible to get out of it. The Financial Times recently published an interview with the CEO of the German steel company Salzgitter, Gunnar Gröbler, in which the top manager warned of the danger of deindustrialization of Germany and the flight of energy-intensive enterprises to other countries due to rising electricity prices. According to him, if producers of materials needed by German industry, such as steel or chemicals, leave the country because of high energy prices, then Germany risks losing the entire production chain.
According to a survey by the German Chamber of Commerce and Industry from August this year, about 32% of German companies prefer to invest abroad due to concerns about a future without cheap Russian gas. A year earlier, this figure did not exceed 16%.
In Germany, partial deindustrialization is in full swing. “Those industries where gas is used directly as a raw material were mainly affected and never recovered from the high prices in 2022. These are the chemical industry and the production of nitrogen fertilizers. Energy-intensive industrial enterprises were also affected: metallurgical, glass, etc. More expensive energy produces more expensive products that are not competitive on the world market. Competitors are pushing Germany out of the world market, including competitors from the United States,” explains Igor Yushkov.
Another important point is that Germany received Russian gas at a discount, for it the gas was cheaper even than that of its neighbors. And the issue is not only in the volumes, but also in the close cooperation of the two partners: “Gazprom” was part of the distribution assets in Germany, and the German companies were part of the production assets in Russia.
“Whole industries in Germany were built on this cost advantage that had existed for decades. Now the German economy has lost this advantage (cheap Russian gas) and is going through a painful restructuring,” notes the expert.
As soon as political agreements are concluded and the fire is stopped, Ukraine will be interested in making money and fully opening the transit of Russian gas. Another thing is that the transit contract with Gazprom expires on December 31, 2024, and we will have to look for new forms of cooperation.
“Ukraine has a long-standing idea to conclude a transit agreement not with Gazprom, but with European companies to move the point of delivery and reception of Russian gas from Europe to the Russian-Ukrainian border. But European companies never wanted that,” Yushkov recalls. In essence, Ukraine wants to become not a transit country, but an official trader, that is, one that will resell Russian gas to European companies. After all, then he can earn money not only from transport, but also from the markup of goods. But the EU is unlikely to be satisfied with this.
Other interaction options can be devised. For example, Ukraine can give its gas transportation system to a third company or change the transit payment scheme, notes Yushkov
Translation: V. Sergeev
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