beyondbrics

By Isabel Gorst and Stefan Wagstyl

Arctic temperatures in Russia have forced Gazprom to divert gas supplies away from European markets to serve a surge in energy demand on the home front. At least that’s what the European Union is saying.

Gazprom (GAZP:MCX) claims it is exporting even more gas than usual to help Europe through an abnormally cold snap as freezing winds blow west from Siberia. It says that if there are any shortages they are caused by Ukraine filching EU-bound gas from transit pipelines.

In other circumstances this could be a nightmare scenario for Europe that depends on Gazprom for about one fifth of its gas supplies. Most Russian gas exports are transported through Ukrainian pipelines leaving Europe vulnerable when Moscow and Kiev spar over transit terms.

However, so far the European Union has kept its cool saying there is enough gas available from other sources – and in storage – to cover the missing Russian volumes.

“I can confirm that there has been a decrease in gas deliveries in various member states: Poland, Slovakia, Austria, Hungary, Bulgaria, Romania, Greece and Italy,” EU energy spokeswoman Marlene Holzner told a regular news briefing on Friday. “Yesterday, we saw in Austria a decrease of 30 percent, Italy of 24 percent and Poland 8 percent. But I must also say that it’s not a situation of emergency yet.”

Austria’s OMV, central Europe’s biggest energy company, reported a 30 per cent fall in Russian supplies to its Baumgarten gas hub in Austria on Thursday. Baumgarten handles one third of Russian gas deliveries to western Europe and plays a critical role in energy supplies to the region.

On Friday Ukraine raised the alarm, reporting that gas supplies through its transit network had fallen by more than 15 per cent as Gazprom grappled to meet domestic demand. “The main problem is that Russia is seeing extremely severe cold and has substantially reduced gas shipments to Ukraine,” Yuri Boiko, the Ukrainian energy minister told Interfax.

PGNiG, the Polish gas monopoly, said Russian gas deliveries had returned to requested levels on Friday after falling by 7 per cent the day before. However, the company warned there was still a risk of “slight volatility” in supplies owing to the bitter cold.

Further south, Bulgartransgaz, the Bulgarian gas company, told Reuters on Friday that supplies of Russian gas to Bulgaria, Greece, Turkey and Macedonia had dropped by more than 30 percent.

Turkish officials said Russian gas supplies to Turkey were expected to return to normal levels on Friday after a drop of more than 30 percent due to problems in transit countries. But Gazprom said supplies via the Bluestream pipeline, that links Russia and Turkey directly, had been increased.

Freezing weather has driven Russian gas demand this week to a record 2bn cubic metres a day – more than a small European countries like Slovakia consumes in a whole year. Weathermen say the big freeze has dug in with temperatures expected to remain below minus 35 Celsius across much of the country until the middle of this month.

But Alexander Medvedev, Gazprom’s deputy chief executive, claims to be baffled by the slowdown in Russian gas deliveries to Europe. “Our company has increased gas supplies to European countries …. to the maximum in the middle of a harsh winter in Russia and Europe,’ he said on Thursday.

Medvedev accused Ukraine of taking more gas out of pipelines than it had contracted to pay for, removing supplies intended for Europe. Ukraine promptly denied the charges.

Whatever is causing the reduction in Russian gas deliveries, the Europe can for once afford to keep its cool.

The EU, made wary by earlier Russian supply disruptions, has taken precautionary measures. Gas storage infrastructure has been increased and a web of interconnecting pipelines build to distribute gas between different countries in Europe if needs be.

According to Gas Infrastructure Europe, an EU-backed industry body, there was on Thursday 48.8bn cubic metres of gas in the EU stores that it monitors, down from 49.5bn cubic metres the previous day.

This compares with annual gas consumption in 2010 in the EU plus Switzerland of 520bn cubic metres, of which about a third came from Gazprom, on numbers from Eurogas, EU gas suppliers’ organisation.

Ss there’s more than a month of total consumption in store, and more than three months of Gazprom’s supply. As the chart below, based on GIE data,  shows,  the storage tanks are fuller now than they were at the same time last winter or the year before. The vertical lines show the same date in February each winter.

Source: GIE

Unusually warm weather early this winter together with a fall in energy demand caused by the recession has allowed Europe to build unusually large gas inventories that are now being tapped to compensate for the shortfall in Russian supplies. Furthermore, unexpectedly large amounts of gas are flowing into Europe from Norway where regulators sanctioned an increase in production from a giant North Sea gas field late last year. “There is no crisis at this point,” says Ilya Balabanovsky, energy analyst at Renaissance Capital.

Even with the cold weather pushing up demand, Gazprom will struggle to meet its target to boost gas exports to Europe by 9 per cent to 165 billion cubic metres this year.

Related reading
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