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Russia Sanctions

European Gas, Power Price Spikes Ease on Russia Sanctions Downplay

The fear of energy sanctions on Russia saw gas and power prices spike early March 7 before European leaders moved to play down the likelihood of such a move.

"Europe has deliberately exempted energy supplies from Russia from sanctions," Germany's Chancellor Olaf Scholz said in a statement.

Similar statements by Dutch Prime Minister Mark Rutte and UK Prime Minister Boris Johnson followed, deflating front-month Dutch TTF gas on the ICE exchange from Eur345/MWh in the morning to a Eur227.20/MWh settle -- still a record for the contract.

Similarly, front-month German baseload power was up over 54% at one point to Eur675/MWh on the EEX exchange before falling back to Eur440/MWh late afternoon, again above the contract's record settle.

Economic sanctions already imposed on Russia, twinned with ongoing military action inside Ukraine and deteriorating relations between the Russian State and the West continue to cast enormous uncertainty over the immediate availability of Russian gas to Europe in 2022, S&P Global Commodity Insights analysts said.

The following are key developments impacting power and gas assets in the region:


Russian gas transport through Ukraine has been in decline in recent years and fell sharply at the start of 2022, but is now flowing at maximum contractual levels as Gazprom-contracted gas becomes more competitive versus hub gas. So far, the war has not led to any disruption to gas transit.

- Ukraine remains a key transit route for Russian gas to Europe, accounting for a little under 10% of Europe's gas demand in 2021.

- Under a five-year transit deal between Gazprom and Ukraine's Naftogaz in 2019, the Russian company agreed to send a minimum of 110 million cu m/d of gas via Ukraine to Europe under ship-or-pay terms in 2022, meaning it must pay for that level of transit whether it uses the route or not.

- Deliveries via Ukraine fell sharply in January, but have been at the contractual maximum of 110 million cu m/d in recent days.

European electricity transmission system operators are to consider Ukraine's request for emergency synchronization with the continental European network in mid-March, enabling flows of power from the west.

- The Ukraine power system has been operating in independent mode after delinking from Russia and Belarus Feb. 24.

- The network has maintained stable supply despite localized outages since the conflict began, coal stocks having been built up at power stations ahead of desynchronization.

Germany's Scholz Reiterates Opposition to Immediate EU Sanctions on Russian Energy Imports

German Chancellor Olaf Scholz reiterated March 23 his opposition to any immediate curbs on EU imports of Russian fossil fuels, warning that any such moves would plunge the region into an economic recession.

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Biden to Announce Joint Action on Enhancing European Energy Security

President Joe Biden will head to Europe March 23 and is expected to join US allies and partners in imposing further sanctions on Russia and tightening existing restrictions to ensure robust enforcement and prevent Russia from evading the severe economic costs imposed for its invasion of Ukraine, National Security Advisor Jake Sullivan told reporters March 22.


Ireland, Lithuania Push EU for Russian Oil Sanctions Ahead of Biden Meeting

Ireland and Lithuania called for the EU to impose sanctions on Russia's oil trade at a meeting in Brussels on March 21 ahead of talks with U.S. President Joe Biden later in the week.


Oil, Gas Sector Ready to Respond as U.K. Prioritizes Self-Reliance: Serica CEO

Oil and gas companies will back a revamped UK energy strategy intended to boost resilience following the Ukraine invasion, provided progress is made on efforts to support the industry and the authorities maintain tax stability, Mitch Flegg, CEO of gas producer Serica Energy, said in an interview.


Russia-Ukraine Conflict Pushes European Commodities to New Highs

S&P Global Commodity Insights

Russian Gas

Europe's Exit From Russian Gas: 10 Questions On Utilities

In a major shift of energy policy, the European Commission is looking to drastically reduce Europe's imports of fossil fuel from Russia following Russia's military actions in Ukraine. S&P Global Ratings believes this is unlikely to end well for European gas players, mainly because other gas sources cannot replace the large volumes from Russia. What's more, we believe some energy-intensive industrial sectors like fertilizers, steel, and paper could face temporary plant closures, hampering the eurozone's GDP growth, with a potential knock-on effect on utilities.

The Commission unveiled the outline of its plan to make Europe independent from Russian oil and gas on March 8. The proposal--REPowerEU--will seek to diversify gas supplies, speed up the rollout of renewable gases, and replace gas in heating and power generation, thereby reducing EU demand for Russian gas as soon as possible, with the target initially set at two-thirds before the end of the year. As essential as such a plan is for Europe's energy security, it may not be easy to implement. Gas production in Europe has been in structural decline for years. In addition, there are limited sources of gas globally and supply lags due to underinvestment, while expanding regasification capacity will take time. Also, most of the world's liquefied natural gas (LNG) production is currently locked into long-term contracts not destined for Europe, and large supply increments are unlikely before 2025-2026.

How Dependent Is Europe On Russian Gas?

The EU imports 90% of the gas it consumes and, on average, about 40% of that comes from Russia (45% in 2021). This represents about 140 billion cubic meters (bcm) per year. In the U.K., the situation is very different, since Britain imports only 5% of its total gas needs from Russia.

We believe that, in the best case, all else being equal, Europe can find about 50 bcm of gas elsewhere, leaving a shortfall of about 90 bcm. According to S&P Global Platts Analytics, the most likely sources this year would be, in order of likelihood: international imports of LNG (25 bcm), Italy's strategic reserve (4.6 bcm), a potential increase in Norwegian production (10 bcm), additional flows to Italy from Algeria and Libya (10 bcm and 4 bcm respectively), and increased production in the Netherlands by expanding the Groningen permit (2 bcm).

We see additional LNG imports beyond these levels as challenging. Notably, this is because it takes two to three years to build an LNG terminal, so an immediate increase in Europe's regasification capacity is not possible.

German Gas Grid Operator Group Warns of Impact of Mandatory Storage Obligations

Germany's gas grid operators on March 24 warned of the "considerable" financial risk of mandating minimum gas storage levels, despite agreeing that it was important to make provisions for next winter.


Russia's Novak Says European Gas Prices Could Exceed $4,000 Per Thousand Cubic Meters

Russian deputy prime minister Alexander Novak said March 23 that European gas prices could exceed $4,000/1,000 cubic meters given the current situation in energy markets.


Qatar in Talks to Provide Long-Term Supply of LNG to Germany

Germany hopes to lock down a long-term LNG import deal with LNG powerhouse Qatar as Berlin looks to eliminate the need for Russian gas.


Extremely High And Volatile Gas Prices Signal A Structural Shift In Europe's Energy Market

Elevated and extremely volatile European gas prices reflect mounting risks related to gas supply from Russia, and Europe's strong political push to diversify away from Russian gas, on top of an already tight supply-demand situation before the Russia-Ukraine conflict.


EC Eyes Reduction in EU Demand for Russian Gas by Two Thirds Before End-2022

The European Commission on March 8 unveiled new energy security proposals that seek to reduce European demand for Russian gas by two thirds by the end of 2022.


Nord Stream 2

Nord Stream 2 Pipeline Subsidiary says 'Will Probably Be Wound Up': Website

The recently created German subsidiary of the Nord Stream 2 operating company -- Gas for Europe GmbH -- expects to be wound up, the company said on its website.

In an undated message on the home page of its website, Gas for Europe said: "Due to current developments, also at our shareholder Nord Stream 2 AG, Gas for Europe GmbH will probably be wound up."

Switzerland-based Nord Stream 2 AG said in late January that Gas for Europe GmbH had been established to operate the 54-km section of the pipeline located in German territorial waters in response to an order from the German regulator as part of the certification process for Nord Stream 2.

Nord Stream 2 AG denied March 2 reports that it had filed for bankruptcy, however, saying it had only informed local authorities that it had terminated employee contracts.

Numerous media reports, citing sources and Swiss officials, on March 1 said Nord Stream 2 AG had filed for insolvency or was planning to after US sanctions were imposed against the company on Feb. 23.

Nord Stream 2 Gas Pipeline Dealt Potentially Fatal Blows

The Nord Stream 2 gas pipeline appears, now, to really be dead in the water without ever having started commercial operations.

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Europe's TTF Gas Price Surges by 28% as Russia Launches Ukraine Invasion

Europe's TTF gas price made huge gains in early trade Feb. 24 after Ukraine said Russia had launched a full-scale invasion of the country.

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Nord Stream 2 Halted as Crude Surges After Russia Sends Troops into Ukraine

Germany pressed pause Feb. 22 on the Nord Stream 2 gas pipeline project with Russia as European allies and the US finalize a response and likely sanctions after the Kremlin ordered troops into a disputed area of Ukraine.

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Germany says Nord Stream 2 Gas Pipeline Certification Cannot Now Go Ahead

German Chancellor Olaf Scholz said Feb. 22 that the Nord Stream 2 gas pipeline from Russia could not now be certified after Russian President Vladimir Putin late Feb. 21 publicly recognized eastern Ukraine's Donetsk and Luhansk regions as breakaway states.

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Europe Energy Price Crisis

S&P Global Platts

Spiraling gas and power prices in late 2021 have sent ripples across the European energy and industrial sectors, with the UK especially hard hit.



EC Proposes 80% Minimum Gas Storage Obligation by Nov. 1, 2022

The European Commission March 23 proposed new rules on minimum gas storage obligations, saying storage sites in the EU would have to be filled to 80% of capacity by Nov. 1 this year, before rising to 90% in subsequent years.

EC to Unveil New Energy Security Proposals March 8

The European Commission is set to unveil new energy security proposals March 8 that seek to end Europe's dependency on Russian fossil fuels, EC President Ursula von der Leyen said at a news conference March 7.


EC Mulls Imposing Minimum Gas Storage Requirements on Member States: Draft

The European Commission is considering imposing minimum gas storage requirements on member states to improve gas supply security in Europe, according to a leaked draft communication. In the leaked document, the EC also said it expected gas and power prices to remain high "and volatile" until at least 2023.

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Effect on Energy Transition

European Industry Groups Applaud EC Plan on Accelerated Renewable Gas Build-Out

The European Commission's plan to replace Russian gas imports in part with higher renewable gas production is a "decisive" step toward a more rapid development of the sector, European gas industry groups said March 8.

The EC on March 8 unveiled new energy security proposals under the REPowerEU initiative that seek to reduce European demand for Russian gas by two-thirds by the end of 2022.

It said it would seek to diversify gas supplies, speed up the roll-out of renewable gases and replace gas in heating and power generation.

On biomethane specifically, the EC said production in 2022 could deliver 3.5 Bcm to replace Russian gas, and reach 35 Bcm/year by 2030.

That is higher than the 17 Bcm the EC had flagged by 2030 under its "Fit for 55" proposals published last year.

"REPowerEU is a decisive step towards the rapid development of the biomethane industry in Europe," the European Biogas Association (EBA) said in a statement.

"The sector is ready to deliver the 35 Bcm by 2030 proposed by the EU and calls for the inclusion of this target in the recast of the Renewable Energy Directive, currently under development," it said.

"Close cooperation between the European Commission, member states and the biomethane value chain will be required to ensure immediate action."

'Key steps forward'

As well as the more ambitious biomethane target, the EC said some 20 million mt/year of hydrogen supplies would replace 50 Bcm of Russian gas by 2030.

Twelve gas industry groups said March 8 these developments in particular were "key steps forward".

The groups -- including Eurogas, the EBA, Gas Infrastructure Europe, Gas Naturally, and the NGVA -- already last year launched a joint call for binding EU targets to reduce the greenhouse gas intensity of gas consumed and increase demand for renewable gas.

"Such targets would send clear signals to investors in terms of decarbonizing gas and scaling up renewable gases," they said. "At the time of the original call, binding 2030 targets were deemed urgent."

Coal to Help Solve EU Energy Crisis as Trade Patterns Shift: Shippers

Coal will help solve the European Union's current energy price squeeze, even while the Russia-Ukraine crisis is expected overall to speed up actions towards the energy transition, participants in a shipping panel at the FT Commodities Global Summit said March 23.


EC Targets Faster Wind/Solar Permitting, Heat Pumps, Consumer Protection

Europe must amend its permitting rules to clear the way for a massive acceleration in wind and solar development in response to the war in Ukraine, European Commissioner for Energy Kadri Simson said March 8.

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Germany to Double Down on Wind, Solar Amid Wider Energy Policy Review

Germany is to double down on its renewable energy policy while reviewing coal and nuclear closure plans in response to the heightened threat to Russian gas supplies, according to draft legislation seen by S&P Global Commodity Insights.


Europe May Buy More U.S. LNG, Rethink ESG Goals to Reduce Reliance on Russian Gas

Europe's efforts to wean itself off Russian natural gas could bolster the prospects of more U.S. LNG export capacity and challenge U.S. institutional investors looking to move away from the oil and gas sector, according to European energy experts.