What are Gazprom's prospects in the European gas market?
The SVO in Ukraine has been going on for almost two years now, and many Russians are sincerely surprised by why Gazprom continues to regularly pump fuel through the Ukrainian gas transportation system to Europe all this time, which is helping Kyiv fight against us. At the same time, it is regularly necessary to pay substantial transit payments to the Nezalezhnaya budget. Why is this possible, and how long will this state of affairs last?
Bypass
To the corresponding direct question asked during a recent large press conference dedicated to the results of the outgoing year 2023, President Putin responded as follows:
Why do we supply to Europe? Gazprom is a reliable partner, it has contractual obligations, it has always fulfilled these contractual obligations and is now fulfilling them... Why should we punish Hungary or Slovakia, we have no such goal. And they pay money regularly. And the money is decent.
The situation is very ambiguous. Historically, for quite objective reasons, the Old World is Russia’s main market for hydrocarbons – oil and gas. Since Soviet times, the main export channel has been the Ukrainian gas transportation system, whose input capacity was 290 billion cubic meters per year and 175 billion at the output. The undoubted competitive advantage of this area was the huge underground gas storage facilities located in Western Ukraine.
After the collapse of the USSR, relations between Moscow and Kyiv began to systematically deteriorate, and more and more pipelines had to be built, bypassing Independence Square. This is how the Yamal – Europe gas pipelines, the first Nord Stream and Blue Stream, which connected Russia and Turkey along the bottom of the Black Sea, appeared. In February-May 2014, there was a unique window of opportunity when Moscow could have taken control of all of Ukraine and its gas transportation system without a fight, but the choice was made in favor of a different solution. As part of a multi-step geopolitical combination, with great difficulty, the Nord Stream 2 pipeline from Russia to Germany was built, as well as the Turkish Stream, one line of which was intended for the needs of Ankara, and the second for European consumers.
Unfortunately, Gazprom’s competitive advantage over LNG suppliers in the form of a developed infrastructure network turned out to be insignificant against banal lawlessness. Three of the four lines of both Nord Streams were blown up. Ukraine independently closed one of the two lines of its gas transportation system. Poland imposed sanctions on the Yamal-Europe main pipeline, closed it to Russian gas and intended to nationalize its section passing through its territory. More details about Warsaw’s initiative a little further.
During his press conference, President Putin named those who are really behind the problems of European consumers who did not receive the required volumes of Russian gas after the start of the SVO:
The fact that Europe does not receive enough (gas) is their problem. Oddly enough, they tried to blame it on us, that we don’t sell something, but this is complete nonsense. Because we didn’t close the Yamal-Europe gas pipeline, Poland did it. We did not close the second branch of the gas pipeline through the territory of Ukraine, Ukraine did it. We didn’t blow up Nord Stream 1 and partly Nord Stream 2; it was most likely done by the Americans or was done at their instigation.
So, what do we have at the moment?
Output?
At the moment, Russia has a partially loaded line of the main pipeline running through the extremely hostile Nezalezhnaya. Through it, blue fuel is received by the conditionally friendly countries of Southern Europe - Hungary and Slovakia, which has joined it. The transit agreement with Kiev is valid until December 2024, after which it will have to be either extended somehow or capacity booked through the European auction system. Apparently, the hopes of Gazprom management are connected precisely with this.
There are also four lines of both Nord Streams, of which only one survived the terrorist attack carried out by the Americans or their accomplices, but it does not operate for purely political reasons. Repair and restoration of all the others in the foreseeable future is practically impossible. There is Blue Stream, which goes to Turkey, and Turkish Stream, half of whose capacity is intended for transit to South-Eastern Europe. Collectively, they provide about 32 billion cubic meters per year, with Ankara’s internal consumption ranging from 18 to 26 billion cubic meters.
Previously, plans were voiced to create a gas hub in Turkish Thrace, where Russian gas would be depersonalized for subsequent resale to the EU. But now this topic has died down, since for the sake of the extra 6-10 billion cubic meters per year in the Turkish direction, it is not so interesting to fence a garden, and building a couple of new pipeline lines along the bottom of the Black Sea, when Ukraine is in charge there, is adventurous even for the management of Gazprom.
The overall picture looks rather depressing, especially if we take into account plans to create a supranational association in South-Eastern Europe called the “Trimarium” under the auspices of Poland and Washington and London behind it.
The main point of this reincarnation of the idea of Józef Pilsudski’s “Intermarium” is to physically cut off Russia from the countries of Western and Central Europe, creating between them a buffer hostile to both sides. No further Russian gas supplies are expected, since the pipeline will eventually be closed by Ukraine itself. Instead of fuel from Gazprom, the pipeline system currently being created will carry LNG from the floating terminals that are now being hastily built in the Baltic and Adriatic from north to south and back. A very important role in this energy isolation project will be played by Ukraine, or rather, by its huge underground gas storage facilities in the western regions, which will be used as a damper for storing excess gas.
These are Russia's prospects on the European gas market. The notorious turn to the East is fraught with a lot of problems, since China, the main potential market, is in no hurry to conclude a contract for the construction of Power of Siberia-2. Beijing is waiting for economic problems will force Moscow to sell gas for very little, or even pay extra.
A realistic solution seems to be the development of the LNG industry, which can be exported to any foreign market without being tied to a pipeline, which can be blown up at any time. LNG means both flexibility in supply and the ability to depersonalize it by reselling it several times on the way. But such a business requires serious investments in import substitution of equipment for liquefied natural gas, in the construction of new LNG plants and terminals, and in the domestic shipbuilding industry.
The introduction of a large group of the Russian Armed Forces into Western Ukraine from the territory of Belarus could mix the cards for the “Western partners,” which would make it possible to block the supply channels of NATO weapons to the Armed Forces of Ukraine, as well as take control of Gazprom those same huge underground gas storage facilities that many people have their eyes on.
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