EXPLAINER: What are the fallout from the shutdown of the pipe in Ukraine? | Economic news

The closure of a gas pipeline in eastern Ukraine has sent a new wave of energy jitters across Europe.

The price of gasoline jumped, then fell. The cut is clear because it is the first time that the war has disrupted Russian natural gas flowing through Ukraine on its way to Europe, where it fuels factories and generates electricity.

Here are the key things to know:

WHAT HAPPENED IN UKRAINE?

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The gas pipeline network operator, Gas TSO of Ukraine, said it could no longer transport gas through a compressor station in the Lugansk region of eastern Ukraine, near the border with Ukraine. Russia. He said he had no operational control over the station located in Russian-controlled territory, with occupation forces interfering in the operation of the station and diverting gas in ways that endangered the stability of the gas pipeline system.

The company said it had repeatedly informed Russian state gas exporter Gazpro m of threats to flows resulting from such interference, but its calls had been ignored.

The pipeline handles about a third of Russian gas bound for Europe. The Ukrainian operator said that gas flows could be compensated by another gas pipeline that crosses Russia to Ukraine near the town of Sudzha.

Gazprom said that was not possible, but gas flows at Sudzha increased overnight, by about 8 million cubic meters per day.

WHY IS THIS ATTRACTIVE?

While Russia has cut off natural gas to Poland and Bulgaria over a dispute over ruble payments, Wednesday’s cut is the first cut in gas supplies passing through Ukraine due to the war.

Any suggestion that energy supplies are vulnerable has driven prices up. Spot gas prices rose 4% at the opening of markets on Wednesday, to 103 euros per megawatt. But they then eased, to around 95 euros per megawatt hour, below what they were on Tuesday.

European governments are not happy to send hundreds of millions of dollars a day to Russia for energy, but have been unable to agree on a boycott of natural gas due to heavy dependence on major economies like Germany and Italy. The European Union’s executive board has proposed a phase-out of Russian oil, but has met resistance from dependent countries like Hungary.

Economists estimate that a total cut off from oil and natural gas would plunge Europe into a recession. A loss of gas alone would hit industries such as metals, fertilizers, glass and ceramics, which in some cases have already slowed production due to high gas prices. And consumers would face even higher electricity and heating bills than they already do.

To avoid these outcomes, the EU has proposed cutting Russian gas imports by two-thirds by the end of the year through additional pipeline supplies from Norway and Azerbaijan, more purchases of liquefied gas by ship, to a faster deployment of wind and solar energy. , and conservation. Whether this can be achieved remains to be seen.

WHAT HAPPENS WITH GAS FLOW?

Before the war, the share of Russian gas routed to Europe via Ukraine had fallen to around 18%. Of that number, about a third go through that particular part of the pipeline system that has been shut down. This can represent up to 32.6 million cubic meters per day; in recent days it has been around 23 million cubic meters per day.

Much, but not all, of that gas could be re-routed through the pipeline entering Ukraine near Sudzha, said Zongqiang Luo, gas analyst at Rystad Energy.

Even with increased capacity through this city, some 10 million cubic meters of gas per day would still be looking for a pipeline route to Europe, and “where exactly is unclear as capacity seems full,” Luo said.

Over the course of a year, this daily flow would amount to around 3.6 billion cubic meters of gas, out of the approximately 150 billion cubic meters that Europe imports from Russia. It’s not a huge amount by comparison, but gas supplies are scarce, prices are high, and gas importers and governments are scrambling to find all the non-Russian gas supplies they can.

Germany receives a quarter less gas via Ukraine, the Energy Ministry announced on Wednesday. Increased supplies from Norway and the Netherlands are partly compensating for the shortfall, said Annika Einhorn, spokeswoman for the ministry.

She noted that the majority of Russian gas reaches Germany through the Nord Stream 1 gas pipeline rather than through Ukraine.

WHAT IS THE IMPACT ON ENERGY CONSUMERS IN EUROPE?

Thanks to mild weather, Europe is in better shape on gas after going through the winter with barely adequate supplies. Reserves are filling up faster than last year, but this should continue to cover demand this winter.

The shutdown would make it harder for European countries to meet their targets for storage levels next winter and “accelerate Europe’s plans to shift away from Russian gas imports”, Luo said.

“As the European gas network is well integrated, no country is likely to suffer an immediate impact, but it will put additional pressure on the system and put a floor on the downward price movement,” Luo added.

WHAT ARE THE POSSIBLE MOTIVATIONS FOR MOVING?

Ukraine’s TSO Gas and Gazprom have sought to underscore their reliability as gas suppliers despite the war-fueled enmity, so analysts are still trying to figure out what’s at stake. Commerzbank’s Barbara Lambrecht said: “It remains to be seen whether the supply disruption turns out to be anything more than just muscle flexing.”

Tim Ash, senior sovereign emerging markets strategist at BlueBay Asset Management, said it could be about forcing Europe’s hand.

“I think frustrations are building in Ukraine that Europe is proving too slow to deploy an energy embargo against Russia,” he said. “If Europe isn’t ready to shut down the energy money printing machine for Moscow, why wouldn’t Ukraine take matters into its own hands?

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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