This is an important deadline for Europe. Both from a political point of view but also from an economic point of view. The transit agreement between Gazprom and Naftogaz, which supplied gas to the European Union from Russia via Ukraine, ends on January 1, 2025. A few days before the event, it is difficult to know if an alternative solution will be found or if the Russian supply will be interrupted. Would this situation lead to a new surge in gas prices? The Commission says it is “prepared for severe scenarios and in particular a total stop of Russian imports”. To analyze the possible consequences for Europe, L’Express turned to Didier Holleaux, former president of Eurogas and director of the Engie group, author of The real story of gas (Look for him at noon). According to the expert, the risk of interruption of the gas pipeline is “manageable”, but not without pain.
L’Express: To what extent does Europe remain dependent on Russian gas?
Didier Holleaux: Before the war in Ukraine, Europe imported 155 billion cubic meters of gas from Russia. This represented roughly 40% of its supplies. Since the adjustments made from 2022, the rate of deliveries has hovered around 50 billion cubic meters per year. We have therefore reduced our dependence by more than two thirds. And of what still comes from Russia, half travels by ship (LNG), the other half goes through gas pipelines installed in Ukraine (25%) or Turkey (25%).
What are the different possible scenarios from January 1?
A few days before the event, it is always difficult to predict what will happen. Ukraine does not want to renew the contract. It apparently wants another country to take over and manage gas deliveries directly with Russia. It would be simpler for kyiv from a political point of view. But the candidates do not seem to be rushing to the gate. On the Russian side, it is still difficult to read Vladimir Putin’s intentions. Moscow would undoubtedly want to continue its deliveries to Europe. Beyond the financial resources involved, this would allow it to supply friendly countries like Hungary. But we still need to negotiate with Europe and Ukraine. But this is not what we observe.
We can still rule out a few scenarios. For example, the flow of Russian gas through Turkey should not be interrupted. The two countries need each other too much. The idea of transporting gas from Azerbaijan – instead of Russia – through Ukraine also does not seem likely to materialize, both for technical and political reasons.
Taking all these elements into account, we have a real risk of interruption of the flow passing through Ukrainian territory on January 1st. Note, however, that Europe only depends on Russia for 17% of its gas supplies, including LNG. We are therefore in a zone where such interdependence is manageable. This was not the case in 2022.
What do you mean by “manageable”?
There are two levels of difficulty. First, the risk of physical interruption. Taking into account the available stocks and the possibilities of delivery by sea, specialists believe that the European gas network will continue to operate. But we must take into account another important parameter: that of prices. If the interruption of Russian gas materializes, there will be tensions on the markets. And even if this is a temporary phenomenon, it would come at the wrong time: our manufacturers already pay a gas price 5 to 6 times higher than that of their American competitors. It is extremely destructive.
What would be the worst scenario?
The one in which we have at the same time the interruption of gas transport in Ukraine, and a cold snap throughout the northern hemisphere. We could even imagine a few technical incidents exacerbating tensions here and there. We must keep in mind that the 100 billion cubic meters of Russian gas which are no longer produced are missing from the world market. They will not be completely offset before 2027 by new LNG production in the United States, Qatar, Mozambique or elsewhere in Africa. In all likelihood, the gas market will remain tight for the next two or three years. So if you further remove the flow to Ukraine, which is about 13 billion cubic meters per year, prices will rise. Unless there is a very mild winter and sluggish Chinese demand.
Some observers point to an increase in deliveries of Russian LNG to Europe in recent months. How do you explain it?
Indeed, there is a little more Russian LNG remaining in Europe. But this must be seen as a reflection of technical considerations rather than an unacknowledged desire on the part of Europe to trade with Russia. Most LNG cargoes are held by large groups such as Total, Shell or ExxonMobil. The latter have a very large portfolio of clients and optimize their sources on a daily basis. In recent months, American LNG can no longer easily pass through the Panama Canal to Asia. So American LNG tends to focus on Europe and leave it to the Qataris and others to supply the Far East. Due to similar geographical constraints (restrictions on traffic in the Red Sea towards Asia), Russian LNG has been more present in Europe in recent months. Once again, this does not reflect a European desire to continue using Russian gas.
Did Europe make a mistake by leaving so much room for American LNG?
Let’s first remember that she didn’t really have a choice. When there is a shortage of 100 billion cubic meters on a global market, we turn first to available solutions. But it is clear that it is not desirable to be too dependent on the American market, for example by exceeding 20 to 25% of supplies. First for political reasons: last April, the Biden administration decided to impose a moratorium on the construction of new LNG infrastructure in the United States. And tomorrow? Europe could very well be the victim of an embargo on LNG exports. The United States practiced this policy for oil for 40 years between 1976 and 2016. They considered it in their interest to keep oil within their borders to lower prices. If tomorrow, American industrialists manage to convince Donald Trump that we must act in this way with LNG, we will have difficulties.
The second risk concerns compliance with contracts. While many players in the energy world respect the conditions of these documents as faithfully as possible even in times of war, this is not always the case for certain American companies. Let’s not forget that gas can also be a geopolitical lever!
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