Norway’s Equinor will maintain maximum natural gas production rates through the spring and summer to help the European Union fill its gas storage facilities, the company’s chief executive said this week.
The pledge comes amid continued concern about gas supplies into the warmer months of the year, which is typically the time storage is filled up for the peak demand period of winter. Last year, most of Europe failed to make sure it had enough gas for the winter, which sparked the gas crunch.
Speaking to Bloomberg this week, Equinor’s Anders Opedal said that Norway had always been a reliable partner of Europe and will continue to supply as much gas as it can to the continent as possible. The problem for Europe is that what’s possible is less than half of the gas it needs. Much less, in fact.
According to Eurostat, the EU imported 46.8 percent of its natural gas from Russia in the first half of last year. Norway, for its part, accounted for 20.5 percent of natural gas imports during that period—less than half of what Russia sent the EU’s way.
According to Bruegel, a European economics think tank, Norway exported over 2.9 billion cu m weekly to the EU in late 2021. This compared with a little over 2.3 billion cu m for Russia. During the first half of the year, however, Gazprom kept flows above 3 billion cu m weekly while Norway never reached that level.
The situation highlights the biggest problem that the EU has with its gas supply security. It has been over-reliant on Russia for years, and this has bred complacency and the certainty that whatever happens, Russia will continue shipping gas to Europe.
Russia shares the sentiment, but the recent events around gas prices and Ukraine have shaken it among European governments, which are now in a rush to find alternative suppliers in case they are needed. The task is proving more challenging than perhaps they had expected.
Norway can probably keep pumping at maximum for a while longer, although it would need to stop for maintenance at some point. Yet Norway clearly cannot cover the whole amount of gas that Russia supplies to Europe right now. Also, it can’t cover the additional demand that will be coming from Germany as it closes its coal and nuclear power plants.
This was the point of the Nord Stream route expansion, by the way—ensuring supply for nuclear-free and, later, coal-free Germany. The Nord Stream 1 pipeline currently ships more than a third of Russian gas exports to Europe. Doubling its capacity with Nord Stream 2—unless the Biden administration makes good on its threat to kill it, of course—will make it fit to handle more than two-thirds of Russia’s gas exports to Europe.
What other options does Europe have besides Norway? Central Asia is an option, and more specifically Azerbaijan, which is already shipping some gas through the Southern Gas Corridor ending in Italy. The only other alternative is LNG.
Europe has been the top destination for U.S. liquefied natural gas for three months amid the energy crunch, despite limited LNG import terminal capacity. According to data from Refinitiv reported by Reuters, as much as 75 percent of U.S. LNG exports went to Europe last month. So far this month, half of all U.S. LNG cargos have been sent to Europe.
Qatar and Australia are also LNG options for the EU. The union even suspended an antitrust investigation into Qatar Petroleum—recently renamed QatarEnergy—this month in what might be a sign Brussels is willing to make concessions in exchange for gas.
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By Irina Slav for Oilprice.com
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Therefore, neither Norway’s maximum natural gas exports nor the entire LNG exports from the United States, Qatar and Australia could totally replace the almost 200 billion cubic metres per annum (bcm/y) piped by Russia to the EU in addition to an estimated 15-16 million tons a year (mt/y) of LNG. Only Russia can satisfy the EU’s gas demand. However, Russia isn’t going to ship additional gas supplies to the EU until Nord Stream gas pipeline is certified.
Moreover, Europe has a limited LNG import capacity. This makes ramp-ups of LNG imports quite useless particularly if they are needed to replace Russia’s 40% share of the European gas market. Therefore, the EU particularly Germany has no alternative but to certify Nord Stream 2 gas pipeline if it wants reliable, cheap and plentiful Russian piped gas supplies.
That is why any new sanctions the EU imposes on Russia in the event of the Ukraine crisis escalating into an armed conflict won’t include Russian oil and gas exports and Nord Stream 2. The reason is that Russia will immediately halt all its gas and oil exports to the EU in retaliation thus prolonging and worsening an already damaging energy crisis.
Russia isn’t dependent on the EU for its gas exports. It could easily shift its entire gas and LNG exports to the EU to China which is the world’s largest gas market.
The United States was looking for an excuse to kill Nord Stream 2. But there is no way the United States can kill the gas pipeline short of physically destroying it but this means war with a nuclear-armed-to-the-teeth Russia.
Moreover, Germany will never join the United States in ending Nord Stream 2 because it is crucial to its energy security and moreover it will sink more than 150 major German companies which were involved in the construction of the pipeline and which contributed more than half the costs of the pipeline estimated at $11 bn. Germany depends on Russia for 65% of its natural gas and oil needs.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London