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Viewpoint: Avoiding Chaos

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More signs are emerging of Europe's determination to pivot away from Russian gas. But complete independence is some time off, and any sudden Russian supply cut could upend plans and cause chaos next winter.

The stars are slowly aligning for the first LNG import terminal in Germany, Europe’s largest gas buyer. German utilities Uniper and RWE have procured four floating storage and regasification units (FSRUs) on behalf of the government, which will act as vessel charterer and choose the FSRU sites. There will be one each at Wilhelmshaven and Brunsbuttel — also the site of planned onshore terminals — and possibly Stade and Rostock. At least one will be operational by the end of the year. Just two operational FSRUs could import up to 14 billion cubic meters per year, equivalent to about 14% of German gas demand, RWE said.

The isolated and previously Russian-dependent Baltic states are also making progress. The Gas Interconnector Poland-Lithuania pipeline opened on May 1, offering access to LNG terminals in Western Europe. The benefits are already apparent. Poland’s PGNIG has just taken delivery of its first cargo at Lithuania’s Klaipeda terminal to supply Poland and the Baltics. Estonian and Finnish gas grid operators have meanwhile agreed to cooperate in leasing and managing an FSRU to act as a regional LNG import terminal. The vessel is expected to arrive in Estonia by the end of the year and will be installed in southern Finland by “next winter” to supply both countries.

But Europe still has some way to go. Russia halted gas shipments to Poland and Bulgaria in late April after the two ignored the Kremlin's demand to pay in rubles. Should more countries get cut off, chaos would ensue. The next set of invoices for term supplies of Russian gas come due in the second half of May, and Brussels has not explicitly said whether European buyers would breach sanctions if they complied with the Russian demand. The Kremlin may be calculating that Europe, its largest gas buyer, would have more to lose from a cutoff than Russia.

Italy’s Ecological Transition Minister Roberto Cingolani has warned that a Russian gas halt would endanger the drive to boost European storage ahead of winter. Austrian Energy Minister Leonore Gewessler believes it will take Europe years to end its dependence on Russian gas, and it will be “a huge effort.” The country's energy agency reckons it will take Austria about five years to wean itself off Russia.

A sudden cutoff could also derail German plans to become less dependent on Russia. The country's energy-intensive industry association, VIK, is calling for an urgent reduction in gas consumption to ensure German inventories are filled to the maximum possible by autumn. It wants Berlin to use all possible substitutes for gas-fired generation, postponing the closure of coal plants until at least 2024 or allowing non-gas plants now held in reserve to market capacity. VIK Managing Director Christian Seyfert said it's “worrying” that no concrete efforts are being made to substitute gas in power generation or reduce consumption.

Topics:
Gas Pipelines, Gas Supply, LNG Supply, Floating LNG, LNG Projects, LNG Supply
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