EU considers gas supply alternatives

As the crisis between Russia and Ukraine escalates, European Union leaders are trying to reduce their energy dependence on Russia, but experts believe the gaps will not be filled easily and quickly.

EU gas prices surged almost 50 percent on Thursday afternoon to above 138 euros ($154) per megawatt-hour, according to data platform Trading Economics.

Experts worry that harsher sanctions on Russia by the EU and other Western nations could force Russian energy exports such as oil and natural gas out of global markets. On Tuesday, German Chancellor Olaf Scholz announced the suspension of the approval for the Nord Stream 2 gas pipeline, which is worth about $11 billion. All these have triggered concerns about the EU's vulnerability to a sharp supply disruption.

European Commission President Ursula von der Leyen expressed confidence over the weekend that "even in case of full disruption of gas supply from Russia, we are on the safe side for this winter" and that Europe "would be able to replace the Russia gas with LNG (liquefied natural gas) deliveries that we get from our friends all over the world".

European Commissioner for Energy Kadri Simson also said in Madrid this week that the EU is considering different scenarios for natural gas supply if Russia partially or totally restricts its exports to Europe.

The Estonian politician admitted that there might be a problem with gas supplies as events over Russia-Ukraine unfold. Estonia gets almost all of its natural gas from Russia.

Apart from a possible restriction on gas deliveries by Russian gas company Gazprom, gas stocks are at historical low levels and gas storage is only at 30 percent in Europe, she said.

Europe has become the top destination for LNG shipments from the United States, with half shipped this month going to Europe, according to Refinitiv data. But there are concerns that the EU's LNG terminals have limited available capacity to absorb extra supply and there is not enough LNG to replace Russian gas.

Simone Tagliapietra, a senior fellow at think tank Bruegel in Brussels, said the EU would likely be able to survive a disruption of all Russian gas flows until spring.

"However, the picture becomes more complicated for next winter. And in any case, the economic implications would be massive," he wrote in a tweet on Thursday.

Tagliapietra believes that since the Western sanctions are designed to allow energy payments to continue, there are no excuses for Russia to cut supplies unless Russia launches a deliberate counter sanction.

A paper published last month by a group of Bruegel researchers concluded that if Russian gas stops flowing, measures to replace supply will not be enough.

"The European Union will need to curb demand, implying difficult and costly decisions," the paper said.

Europe relies on Russia for about 40 percent of its natural gas. Germany, the largest economy in the EU, gets 55 percent of its natural gas imports from Russia. Germany highly depends on natural gas in its energy mix after it phased out nuclear power. It is also weaning off coal-generated power under a plan to make a total shift to renewable sources by 2045.

Guntram Wolff, director of Bruegel, said stopping gas imports will hurt Russia, but Russia can make the loss up by going to other markets.

"But Russia may well stop gas to hurt EU and EU should prepare," he wrote in a tweet on Thursday. Russia said it will continue to deliver uninterrupted natural gas supplies to world markets.

"We do not think it likely that Russia would shut off gas supplies to Europe. Russia delivered gas to Europe through the Crimea crisis in 2014/15 after the imposition of selected sanctions in response, and at the height of the Cold War," Barclays analysts said.

Agencies contributed to the story.