The energy crisis initiated before Russia invaded Ukraine may be the final one thanks to Gazprom’s impressive suicide in Europe. Russia may resort to hybrid war tools more frequently considering the growing number of incidents with „unknown perpetrators” – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
Gazprom withdraws from Europe at its own request
Gazprom’s post-tax revenues are expected to reach 2.2 billion rubles in 2023 (USD 24.3 million) compared to 3.6 trillion rubles in 2022. That’s a nearly 40 percent drop. Western analysts rely on estimates and reports from Gazprom, which after the Russian invasion of Ukraine, along with the entire Russian energy and fuel sector, stopped publishing official data.
The obligation to accumulate gas reserves in Europe implemented at a record pace, as already in August 2023 the storage facilities were full at over 90 percent, offered a sense of security of supply throughout the heating season until March 2024. For this reason, the price of gas on the Dutch TTF virtual trading point reached in early January the psychological threshold of 30 euros per megawatt-hour, which has not happened since June 2021, when Gazprom had just started to cut supply and ceased filling storage facilities under its management in Austria, Germany and the Netherlands to initiate the energy crisis.
The other reason behind this is the fact that European clients dropped gas from Russia despite the lack of real sanctions on this fuel, contrary to the restrictions imposed on oil and LPG. The EU program REPowerEU initially included a (non-binding) declaration about the willingness to move away from fossil fuels from Russia by 2027 at the latest, but today only mentions minimizing the dependence by 2030. Despite this, Russian gas sales in Europe are falling both in terms of network gas and LNG – despite the Kremlin’s propaganda about expansion in the liquefied gas market. The liquid gas’s future will also be undermined by sanctions preventing the use of high technologies from the West and lack of analogues in Russia and Asia.
Reuters estimates that Gazprom’s supplies to the European market reached 28.3 billion cubic meters in 2023, which is a drop by 55.6 percent compared to 2022, when 63.8 billion cubic meters from this company reached the Old Continent. On the basis of data from ENTSO-G and Ukraine’s gas transmission system operator, Reuters estimates that Gazprom’s average supply in 2023 was about 77.6 mcm a day. In 2022 that figure was 174.8 mcm. The agency recalls that at its peak in 2018-19 the supply from Gazprom reached 175-180 billion cubic meters. According to LSEG data, LNG supplies from Russia to Europe fell by 1.9 percent in 2023 dropping to 15.8 metric tons. Shipments to Asia fell by 11 percent – to 14.9 million metric tons. Total LNG shipments from Russia went down by 6 percent to 31 million tons, out of which 18.7 million tons came from Novatek’s Yamal LNG project and 10.1 million tons from Gazprom’s Sakhalin 2 project. Portovaya LNG shipped 1.4 million tons in 2023.
Russians are disappearing from Europe and are being replaced with alternatives that they had previously portrayed as unattractive, a conviction shared by some commentators in the West. According to the latest Eurostat data, when it comes to the natural gas transported to the EU via gas pipelines in the third quarter of 2023, as much as 48.6 percent arrived from Norway, 17.8 percent from Algeria, 16 percent from Russia, 10.5 percent from Great Britain (which imported LNG or from Norway) and 5.9 percent from Azerbaijan. Russia’s share in the energy market in the European Union fell from 14.5 percent in the third quarter of 2022 to 6.5 percent in the same period of 2023. The watershed moment witnessed in Poland as early as in 2018 is happening again due to the energy crisis fueled by Gazprom throughout Europe, the most recent example of which may be the long-term contract for gas supplies from Norway signed by the Norwegian Equinor and SEFE from Germany, which had been established from the assets of Gazprom Germania seized after the Russian invasion of Ukraine, the same ones that the Russians used to trigger the energy crisis. SEFE has signed a 50 billion euro contract with Equinor, at current market prices, for 40 years for the supply of 129 billion cubic meters until 2039. The volume of annual supplies is 10 billion cubic meters in the years 2024-34 with the possibility of adding another 29 billion cubic meters in the next five years. This is the same case as in the PGNiG-Equinor agreement from 2022, which will last 10 years and supplies 4.5 billion cubic meters annually.
Europe is no longer looking to the Russians when it comes to gas, as they have fallen into a secondary role in a market protected by security of supply regulations, with the storage obligation, again – transferred from Polish legislation to the EU level, on top of the list. Meanwhile, Gazprom’s return to Asia is still in its infancy. The Russians report several times a week on the daily records of gas supplies to China, but the reality is not so colorful, and these announcements may be intended to distract from less joyful facts. President Vladimir Putin signed a law in November to raise taxes on gas producers with Gazprom being affected the most. The goal is to increase budget revenues impacted by sanctions and the invasion after reinstating the fuel bonus in Russia due to the fuel crisis. Among other things, for this reason, Gazprom had to reduce the investment program for 2024 by about 20 percent, to 1.57 trillion rubles. Despite this, the company has promised to continue its preparations for the construction of a new gas pipeline to China called the Power of Siberia 2. However, there are no decisions on this issue, and due to the fact that Siberia lies between the Power of Siberia 1 and Gazprom’s European infrastructure it is technically impossible to redirect gas from Europe to the pipe.
In the longer term, Russia will cease to be an important supplier of energy resources to Europe in general. As evidenced by the drop in the Kremlin’s revenue, it will also fail to find a real alternative to Europe in Asia. The share of revenues from the sale of gas and oil in Russia’s budget has been the lowest in16 years and fell this year by 15 percentage points in the period January-September 2023. In absolute terms, it dropped by 1.5 times. Russia’s revenues from the sale of hydrocarbons in the period under review amounted to 5.58 trillion rubles after a decrease of 2.9 trillion. Sanctions are slow, but fair. If they become even stricter, it will deepen the problems of Russians, whose best litmus test is this Russian mogul committing suicide in Europe, as can be seen in the data despite attempts to conceal them by the Kremlin. Instead of freezing Europe like in the propaganda videos from 2022, in the past twelve months Gazprom had to metaphorically eat hamsters that were hard to swallow in Asia.
Are „unknown perpetrators” Russia’s last option?
Gazprom’s decisions will have less and less impact on gas prices in Europe, which will only be shaken by incidents such as the sabotage of Nord Stream 1 and 2, damage to the Balticconnector or mysterious holes drilled in the pipeline that will evacuate gas from the LNG terminal in Germany’s Brunsbuttel. In this context, it is also worth mentioning the curious downtine at the Freeport LNG terminal in the USA in 2022. It may turn out that gas, instead of tanks, used for the purposes of the Kremlin’s foreign policy in accordance with the Falin-Kvitinsky doctrine will cease to do its job. This means the Russians will be left with the mentioned tanks and a hybrid war, which will entail attacks on the West’s windows to the world of non-Russian fuels, which I had predicted in 2021. This war is probably already underway, although it is difficult to catch the perpetrators red-handed. Nevertheless, it has not yet led to a serious threat to the security of supply, which would significantly affect the price of gas, as the terrorist attacks in the Red Sea in the case of oil. Adequate protection of critical infrastructure in line with the Critical Entities Resilience directive and the EU-NATO cooperation priorities should ensure that there is no sudden increase in prices due to supply problems.