- Russia will cut off gas to Poland and Bulgaria on April 27 in a major escalation in the standoff between Moscow and Europe over energy supplies and the war in Ukraine.
- Poland receives more than 50 percent of its natural gas from Russia, while Bulgaria receives more than 90 percent.
- More countries could lose access to Russian gas in May, with Europe importing about 40 percent of its natural gas from Russia.
- The latest developments further heighten the risk of gas rationing for energy-intensive industries and households later in 2022, leading to operational shutdowns.
In a major escalation between Moscow and Europe over energy supplies and the war in Ukraine, Russia announced it would start cutting off gas deliveries to Poland and Bulgaria from April 27. Following the announcement, European gas prices spiked as much as 24 percent.
The threat of gas cutoffs had been ongoing for weeks as Russia indicated it could halt deliveries to European countries that would not pay for their gas in Russian rubles under a new payment scheme that started April 1. Under this scheme, countries must open accounts at Gazprombank and make payments for Russia gas imports in Euros or U.S. Dollars that would be converted into rubles. European countries have rejected the move in principle but as payment deadlines edge closer in late April and early May, governments across Europe will have to decide whether to accept the new terms or potentially lose access to crucial gas supply.
Poland receives more than 50 percent of its natural gas from Russia, while Bulgaria receives more than 90 percent. Other countries heavily dependent on imports of Russian natural gas include the Czech Republic, Finland, the Baltics, Germany, Austria, and Italy.
| COUNTRY | SHARE OF GAS SUPPLY FROM RUSSIA IN 2021 |
|---|---|
|
BULGARIA
|
90 Percent
|
|
CZECH REPUBLIC
|
87 Percent
|
|
GERMANY
|
55 Percent
|
|
POLAND
|
54 Percent
|
|
ITALY
|
38 Percent
|
Figure 1: Share of gas supply from Russia for selected European countries, in 2021: Source: Eurostat; Euronews; Destatis
Energy-intensive industries to potentially face rationing in Q4 2022
With Poland’s main gas company PGNiG missing its payment schedule, Gazprom reportedly terminated gas supplies on April 27 through the Yamal-Europe pipeline that runs from Russia via Belarus and Poland to Germany. While Poland imported more than 50 percent of its gas supply from Russia in Q1 of 2022, the government had activated contingency plans for a potential cutoff, buying more gas from Qatar and starting a pipeline from Norway in October 2022. The government also indicated that its gas storage is currently about 75 percent full, which would ensure supply for about 40-180 days. With summer approaching and demand for gas likely to be lower in the coming months, authorities were not expecting any immediate impact on households or industries.
In Bulgaria, it was not immediately clear whether supplies had been halted as the government indicated it had paid for Russian gas deliveries for April and Bulgartransgaz, a Bulgarian natural gas transmission and storage operator, reported that supplies to Bulgaria were still flowing on April 27.
Figure 2 – Share of natural gas imports from Russia, 2020; Source: Bloomberg
Immediate and medium-term impacts
With gas supply to Poland confirmed to be disrupted, European gas prices have spiked as much as 24 percent on April 27, and LNG spot prices in other regions such as Asia were expected to increase as European countries would likely start to procure large amounts of available LNG supply. However, as Europe’s LNG terminals were reportedly operating at near maximum capacity, it was not immediately clear how much more spot supply the region could buy.
Germany had already triggered the first of three phases of an emergency plan in late March 2022 that would allow authorities to ration power if supply runs low; preference was expected to be given to private consumers and critical institutions like hospitals, while energy intensive industries would likely be the first in line to see power cuts. A joint forecast of leading economic institutes in Germany indicated that a sudden halt in Russian gas deliveries could cost Germany’s economy 220 billion euros or 6.5 percent of its annual GDP. Industry representatives have therefore started to call on authorities to begin stockpiling gas to ensure sufficient supply would be available in the coming winter.
Even before the cutoff, widespread production disruptions had already been reported across Europe since late February, in particular in energy-intensive industries such as steel, chemicals, glass, textile, aluminum, and copper manufacturing. In Poland, the chemicals, non-metallic minerals, steel manufacturing sectors make up more than 50 percent of Poland’s total energy consumption and are likely going to be most affected by rising prices and potential supply shortages.
Additional disruptions are likely to occur in the coming weeks as gas prices are expected to increase further, making some manufacturing operations unprofitable; however, the biggest impacts including energy rationing are unlikely to occur until temperatures start to drop again in the fall of 2022. Even if more cutoffs to other European countries are unlikely until the second half of May when the next payments are due, European governments are likely to deploy additional emergency measures at their disposal, both on the supply and demand side, to ensure the security of supply in the coming weeks and months.
The Intelligence Monitoring capabilities offered by Everstream Analytics can help customers to stay abreast of the latest political and security developments in the region, and provide early warning signs of further political escalation of the conflict as well as information on the most recent government measures to mitigate the crisis.
Those doing business with manufacturers across the continent are advised to look into which of their key suppliers may already be struggling due to rising material and energy costs, and could therefore be at risk of production disruptions in the short-term.