- April 25th, 2014
Europe braces for gas showdown with Russia, helped by Japan’s nuclear restart
European regulators and power companies are battening down the hatches in case the crisis escalates.
The Western powers are scrambling to bolster defences against a halt in Russian gas supplies after the Kremlin tightened the energy noose on Ukraine, and paramilitary actions in eastern Ukraine increased the risk of a full-blown sanctions war.
The Geneva deal reached last week to defuse the crisis is close to disintegration, with the US government openly accusing Russia of carrying out covert operations across the Donbass region.
US Vice-President Joe Biden warned that Russia will pay a very high price unless the Kremlin withdraws troops massing on the Ukrainian border. “We will not allow this to become an open-ended process. Time is short,” he said.
Two key US senators have already called for sanctions on large Russian banks, mining companies and energy groups, including the state gas monopoly Gazprom. Any such move would freeze gas deliveries to the EU, since few European banks would risk defying US regulators by handling Gazprom transactions.
Dmitry Medvedev the Russian premier, accused the Americans of “pure bluff”, challenging the US to show its teeth. “You can, of course, continue to expand the ‘black list’ it will lead absolutely nowhere,” he told the Duma.
Stepping up pressure on Ukraine, he said Kiev would now have to pay for its energy supplies on the nail. “It’s gas for cash,” he said. Failure to pay would cut off half of Russia’s gas supply to Europe, since it flows through Ukraine’s pipeline.
European regulators and power companies are battening down the hatches in case the crisis escalates. Gas flows from Britain to Europe through the UK’s Interconnector pipeline have soared over the past three weeks to almost 10bn cubic metres (bcm), a sign that countries are boosting reserves even though stocks are high. “Utilities have contingency plans,” said an Interconnector official.
The flows follow fresh deliveries of liquefied natural gas (LNG) from Qatar to the UK’s South Hook terminal in Wales. Total inventories of LNG in Europe have jumped by more than 20pc since late March, despite the high cost.
Brussels is drafting a blueprint for the end of next month on how to cut reliance on Russian energy, working in concert with experts from each country.
The EU has already adapted its gas pipelines so that they can flow backwards to Poland and Hungary. Slovakia is likely to follow soon.
Europe is in a strong position to withstand a gas shock. Inventories are unusually high at 36bcm after a mild winter. Seasonal demand is low over coming months. Stocks are enough to plug the gap through the summer even if there is a total cut-off.
“The key to avoiding a gas crisis is to ensure supply security for next winter,” said Gunther Oettinger, the EU energy commissioner.
The pieces are falling into place. Shinzo Abe, Japan’s premier, announced last week that his country will reopen many of its 48 nuclear reactors once cleared by safety regulators, despite the Fukushima disaster in 2011. “This could have a huge effect. Japan is the world’s largest importer of LNG,” said Prof Alan Riley, from City University.
Japan has relied heavily on LNG in thermal coal to power its industries since Fukushima, importing 76bcm last year. This has been ruinously expensive. It has also soaked up the world’s supply of LNG and driven up the price in Asia to at least four times US levels.
Two reactors in western Japan — the safest area — could be open within six months or less. A further 29 may follow in stages.
Reactor start-ups could free up 34bcm in global supply, allowing it to be re-routed to Europe. Russia’s total gas exports to the EU are 130bcm.
Mr Oettinger told The Telegraph shortly before the Ukraine crisis that swathes of Europe’s chemical, plastic, steel and other industries risk annihilation over coming years unless the EU takes drastic steps to lower energy costs. This is now even more urgent. “I would advise Germany emphatically to open the way for shale gas,” he said.
Ian Bond, from the Centre for European Reform, doubts that the White House will go beyond symbolic sanctions unless the Kremlin escalates dramatically. “If Vladimir Putin were to accede to calls from the ground to defend Republica Novorossiya in Odessa or other self-proclaimed republics, it may happen. Even then President Barack Obama will not want to move without lots of European company,” he said.