What happens if Russia cuts off gas supplies to Europe? | DW Business Special

welcome to this dw business special today we're asking what happens if russia cuts off gas supplies to europe and there's a good reason to be worried perhaps the most important piece of gas infrastructure in europe is being switched off on july the 11th russia will turn off the taps of the nordstrom one pipeline which the country says is necessary to carry out maintenance russia says it'll cut off the gas flow for 10 days but that's happening amid fears in europe of a winter gas shortage right now russia holds all the cards i'm daniel thanks for joining me and speaking of gas i have two guests who have fired up to try to chat about this with me with me in the studio is uh arthur from our business desk thank you very much for coming along and also joining us is uh uh leon is bicky down the line um he's the man who knows everything about gas from energy aspects thank you very much leon as well and we'll get to you in just a moment um but first i'll start with you arthur and you can tell it's serious because i've rolled up my sleeves um what is it like for you in this situation um we're having these these energy supply shortages prices are going up um for energy are you taking uh shorter colder showers because of it well i'm not sure i should divulge too much about my bathing habits please spare us but um that's an interesting point here is because i think one of the things about this situation is that we are hearing talk of a gas crisis an energy crisis yet a lot of us haven't necessarily seen that yet in our daily lives perhaps in recent weeks we've seen energy bills slowly increasing further increases down the line but it's an important message that individual behavior is going to be very very important in terms of how we ultimately conserve gas and conserve energy it is one of the ways that has been consistently highlighted by politicians to to alleviate this crisis you know that we need to have like you said shorter showers colder showers save where we can so perhaps it's one of the areas where we will get over this is through public awareness campaigns to get people to change their everything's gonna have to do that bit but also big industry uh the industries as well you know even in the summer time they're using a lot of gas for producing likes of gas bottles and and gas bottles uh glass bottles is what i wanted to say um and all kinds of uh important industrial production but leon let's turn to you now have you noticed the impact of the energy problems in your day-to-day life i suppose in rising prices for all kinds of goods right yeah absolutely i think it feeds into into everything that we're seeing when it comes to the products that we're buying at the supermarket for example just requiring higher input prices ultimately gas is used in order to produce fertilizers so that's why we are seeing a lot of those food prices actually shooting up but i mean more generally speaking a lot of households in the uk are encountering rising terrorists putting around five to six million households alone uh into energy poverty since the latest raytag in uh in april okay well let's hear now from germany's economy minister and we'll get back to you in a second leon he's also the vice chancellor and he says he doubts russia's explanation for the cut in gas supplies let's take a listen we need to be honest and say that it's impossible to rule out a further gas supply cut we saw it with the reduction of north stream one the technical reasons were given as a pretext and since it happened once it can obviously happen again that's an open secret and in a situation like this one nothing can be ruled out german economy minister and vice chancellor robert harbeck there unable to rule out further reductions of gas flow um leon returning to you is russia's explanation for halting supply due to maintenance credible well i think uh the the previous statements that robert harvick in particular has issued surrounding the the fact that this doesn't quite add up are actually have a lot of merit really you're looking at russia and gazpro in particular citing the lack or missing gas turbine that is currently being overhauled in canada is one of the reasons why there is this flow constraint on north stream one but according to havoc this is actually just part of a normal cycle whereby this gas turbine or these gas turbines are overhauled on an annual basis where the freshly overhauled gas turbine is being re-imported into russia in exchange for another gas turbine so this just takes place cyclically on an annual basis and this gas turbine that is currently definitively stuck in canada because of the because of the sanctions regime was not actually scheduled to get back to russia until fall of this year anyways so why exactly nordstrom one flows have to be curtailed over summer is a bit unclear at this stage so um quite suspect on the on the timing at least um arthur tell us more about this nordstrom one pipeline we've heard a lot about it recently we've heard about the um the building of the north stream ii as well they wanted to expand those gas deliveries from germany from russia into germany how important is this supply route for gas to europe well it's the most important supply route so i mean we we've heard so much in recent months about how much russian gas has been coming into the eu over recent years around 40 last year and then in certain countries it's more so germany took in more than 50 of of um its natural gas from russia last year and north stream one is the most important pipeline i mean the comfortable majority of germany's gas comes via north stream one and you know not far off half of all europe's comes from north street one so it's a crucial archery so and when we look at the overall relationship that russian gas has had with europe fundamental to it is this nordstrom one pipeline which has only been there for 11 years but it's in those 11 years in which russian gas supply to europe and to germany in particular has really accelerated and gone up year on year up until this current crisis yes and we can see it on screen now the north stream one and the north stream two pipeline which was um built but uh didn't actually come online due to the war in ukraine and the yamal pipeline as well which runs through ukraine into germany um let's move on now to the the seriousness of this situation heading into the winter time as well it's worth noting that the eu is rushing to fill its underground tanks its gas storage tanks ahead of the winter and that's become even more urgent now just looking at the state of those reserves at the moment the eu stocks were filled to just 77 of capacity in october last year and were drawn down to 25 by the end of winter in march now the eu is trying again to refill its gas storage sites late last month they were up to about 56 percent full but now a new regulation says they must be filled to at least 80 percent of their capacity by november now if russia wanted to squeeze europe preventing that could be a key method to keeping the upper hand leon how critical is it that the eu fills its gas tanks now as opposed to finding new forms of supply for the winter well i think it's it's there's always a risk on the supply side that something might break that you're looking at for example less lng imports into the european market than we currently expect if there is a colder winter in uh in asia you're looking at the risk surrounding you know pipeline outages when it comes to norwegian supply so if you really want to make sure that you have adequate supply over winter to just also guarantee uh supply to to protected end consumers such as households and critical infrastructure you need those storage tanks to be relatively full in order to also cope with a scenario in which temperatures across europe are you know potentially also colder than uh than usual okay i just want to touch on that um once more because you mentioned the lng um uh capacity being booked up from asia that was before the war in ukraine also last winter it was very expensive for europeans to get their gas supply so how much of the new recent price rises are caused by existing issues that already existed and how much is caused by the acute situation of the war in ukraine i think we're we're looking at a situation in which the the tightness that we are seeing on the market has really been there since 2021 where we have seen a resurgence in demand where we're also in a situation in which for example asia was actually drawing a lot of lng where europe was actually using up a lot of gas in the previous winter because it was uh relatively cold in april and may so this contributed to this tightness into the low end october storage fills that we were seeing in in 2021 and these fears of low supply are really or were exacerbated by the conflict in ukraine and most recently by the politicization of gas flows from russia into europe and into germany in particular via north stream one so really this is this has been a long long time in the making it's a confluence of factors but for now the primary driver for the market when we're also looking at prices being at around 180 euros a megawatt hour on the ttf for the for the front month this is really primarily a risk premium caused by this by these fears surrounding nordstrom 1. so it certainly made a bad situation a lot worse um arthur focusing um on this energy transition so germany announced what it called the energy vendor a long time ago in order to transition germany to renewable sources of energy however a lot of the focus on changing these sources of energy was put on electricity supply specifically so we're talking about uh wind we're talking about solar um how has the country fallen behind so far when it comes to gas or let's say heating energy diversification because a lot of the effort was focused on electricity you can make heat with electricity but we're still having to take a lot of gas from russia how have we gotten to this position well if you think about that energy vendor that you talked about a major fork in the road for that was the fukushima nuclear disaster when germany took the dramatic decision which was applauded at the time that um chancellor merkel took to close down germany's nuclear plants which are now in the process of being closed this year the final three closed by the end of the year however the big mistake the big strategic mistake germany made at that time which was warned about significantly at the time of the us and others was that they were relying too much on russian gas for that transition the transition away from nuclear and also the transition towards renewables and we have to remember this is a warning that had been made for decades american governments in the 1980s ronald reagan's government warning germany and the europe do not be too reliant on russian gas trump exactly he was criticized for it but at least on that one narrow point he was right i suppose and well yes and what we also have to remember is this is not a sort of turning point which was reached a while ago up until the start of this year nordstrom 2 was going to be potentially opened this year and there would be a huge increase in that gas capacity so this is a major strategic mistake that germany made it relied much too heavily on russia as a long-term gas partner there's a relationship going back 50 years but it's we've seen and it as i said it's been warned about it's a major major miscalculation those including states in central and eastern europe who warned russia would not be a reliable partner they would use germany and europe's reliance on russian gas as a way of of avoiding transit fees to those countries through nordstrom 1 and then north stream 2 that the price would have to be paid unfortunately we are all potentially paying this price now yeah it seems that germany may have learned its lesson but too late of course we're currently stuck in this crisis as it is um well finding substitutes for russian gas has become a top priority for western europe so far with some success last month u.s supplies of liquefied natural gas surpassed russian pipeline gas for the first time ever while other gas producers will be selling more to europe including norway the uk algeria and qatar still this won't be enough to completely replace russian supplies right away um arthur i i have a simple direct question but it might be a complicated answer sorry about that but um can the eu live without russian energy well listen daniel the thing is spring will come next year no matter what so life goes on let's hope so but the perfect yeah well who knows i suppose given recent recent months but um you know the fact is at what cost at what cost will come through this it depends who you ask if you talk to certain german businesses for example in the chemical sector where there's 350 000 jobs talk about the metal sector they will say that their businesses are not going to survive a total shutdown in russian gas they're too dependent on gas-fired power plants they will have to make significant closures layoffs major production cuts so for those businesses their weight may not be necessarily surviving for some of them then you've the question of citizens for example if germany ultimately if if russia does no longer provide gas as some are predicting after this maintenance work is finished well then there will always be the question of where will the gas come from germany may then activate its emergency third part of its of its um plan for for that scenario that could lead to major fuel poverty could lead to blackouts it could lead to periods where the most vulnerable in society may not have enough fuel to heat their homes or at least rationing from industry so that people can have heating for their homes at a bearable price perhaps but then of course it has impact on industry which could then drive up prices elsewhere so knock on effect exactly so no matter what there's a major major price that people are going to have to pay for this so in the longer term can europe live without russian gas certainly of course there are options and we're seeing that all happening whether it's lng whether it's renewables but in the short term a major price is going to have to be paid and we've already started paying it okay um so leon i guess that then begs the question how likely it is that the eu can even do what it's set out to do with its targets to get rid of russian energy sources entirely of course eventually it'll be possible but can it do it sooner rather than later what do you think is is feasible well i mean we are we're already in a situation right now where because europe has set global gas prices over the last couple of months at a very very high level we are already essentially working through all of the flexibilities that we still have in the global gas balance we are looking at maximum production from norway into europe we are looking at maximum algerian flows uh flows from azerbaijan and lng flows as well so the question is just in the short term how much more flexibility do we actually have compared to what we are seeing right now and the answer to that simply is not a lot we are going to see slightly more lng availability probably over the course of next year but we are also looking at a situation which for example china might actually start to take a bit more than lng if its economy recovers from covert related lockdowns so all of this means that in the short term we still need gas from russia to actually balance the market in order to avoid such scenarios as widespread rationing for example of industry okay so it's it's not good news but uh at least you've given us the truth like any good doctor it's tough news but we need to hear it um but thank you very much and sadly that brings us to the end of uh this dw business special um but i'd like to remind you at home remember to watch our series business beyond and check out the link where my friend and colleague rob explains why prices are rocketing worldwide so yeah thanks a lot to my guests leon izbiki from energy aspects and arthur sullivan as well in the studio thank you very much for coming in if you've enjoyed this video slap that like button and subscribe and from me and the business team in berlin goodbye and thanks for watching you

Channel: DW News

Views: 462,941

Keywords: EU, Russia, natural gas, LNG, energy, Ukraine, war

Id: lPn17FWsJ4o

Length: 15min 56sec (956 seconds)

Published: Fri Jul 08 2022