If you can't explain it simply, you don't understand it well enough.
The energy crisis
European countries are actively buying up liquefied natural gas (LNG) as an alternative to Russian pipeline supplies, depriving poorer countries that cannot compete for the fuel due to high prices, The Wall Street Journal reported on Friday.
According to the publication, the price of LNG has skyrocketed 1,900% from its low two years ago. Current prices are equivalent to buying oil at $230 a barrel, while LNG normally trades at a discount to oil. Developing countries cannot compete with Europe for the supplies at such prices of about $40 per million British thermal units (MMBtu).
According to Wood Mackenzie data, cited by the Journal, European nations have ramped up their LNG imports by almost 50% year-to-date through June 19. At the same time, India’s imports during that period decreased by 16%, China slashed purchases by 21%, and Pakistan by 15%.
A tender from Pakistan for around $1 billion of LNG attracted no offers on Thursday, the country’s officials said. Each day, the country’s businesses and homes are suffering hours of government-imposed electricity shutdowns because Islamabad can’t import enough natural gas to fuel power plants, they explained.
“Every molecule of gas that was available in our region has been purchased by Europe because they are trying to reduce their dependence on Russia,” Pakistan’s Minister of Energy Musadiq Malik was quoted as saying.
READ MORE: Germany comments on Nord Stream 2 option
In some cases, cargoes that were destined for poorer countries are diverted to Europe. Experts note that’s profitable even if suppliers are forced to pay penalties under contracts with developing countries.
The world’s supply of LNG used to produce power is swallowed up by European nations, according to Valerie Chow, head of gas and LNG research for Asia Pacific at Wood Mackenzie. He told WSJ that “Emerging markets in Asia have taken the brunt of it, with no end in sight.”
French authorities are preparing for a complete suspension of gas supplies from Russia, according to the country’s Finance Minister Bruno Le Maire, who sees such a full shutdown as the “most likely scenario.”
“I think that a total cutoff of Russian gas supplies is a real possibility ... and we need to prepare for this scenario,” Le Maire said, speaking on the sidelines of a conference in southern France, as cited by Reuters.
“It would be totally irresponsible to ignore this scenario,” he said. “We’re pretty much already there.”
According to the minister, the first line of defense is for households and businesses to reduce energy consumption, then the construction of new infrastructure like a floating plant that will be able to re-gasify shipments of liquefied natural gas (LNG) from overseas.
Paris is also looking company-by-company to see which could be forced to scale back production capacities to save energy if necessary, Le Maire said.
Top EU importer of Russian LNG revealedREAD MORE: Top EU importer of Russian LNG revealed
The French government has been preparing contingency plans despite the fact that the nation is less dependent on Russian gas supplies than other European countries. Some 17% of France’s total supply is reportedly coming from Russia.
Marine Le Pen, the leader of France’s right-wing National Rally party, has dismissed EU sanctions against Russia as “completely inefficient.”
Speaking to French broadcaster BMF TV on Sunday, Le Pen said the “sanctions had enriched Russia; they have sanctioned the French more than they had sanctioned Russia.”. The right-wing opposition leader also added that, due to Western sanctions, France had been forced to buy oil from India, a country that itself depends on oil exports from Russia.
Her comments come as the EU plans to phase out Russian gas by 2030 in response to Moscow’s military offensive in Ukraine. In early June, the bloc adopted a new package of sanctions that included a partial embargo on Russian oil imports.
Russian gas supplies to Germany via the Baltic Sea pipeline Nord Stream 1 have been halted for 10 days.
The pipeline's Russian-backed operators say the move is because of annual maintenance work.
But German ministers believe the shutdown is politically motivated to put pressure on Berlin.
Last month, German Economy Minister Robert Habeck said Russian President Vladimir Putin was using gas "as a weapon" in response to EU sanctions.
In mid-June Russia's state gas firm Gazprom cut gas flows through Nord Stream 1 to just 40% of the pipeline's capacity. It blamed a delay in the return of equipment being serviced by Germany's Siemens Energy.
The Canadian government says it will now return a repaired Siemens turbine to Germany for the pipeline. That move angered the Ukrainian government, which accused Canada of adjusting the sanctions imposed on Moscow "to the whims of Russia".
Canada says it is granting Siemens Canada a "time-limited and revocable permit" to send repaired turbines back to Germany, despite the sanctions.
Germany's government is worried that gas supplies could be reduced or cut permanently.
The pipeline shutdown is also affecting Italy, where energy group Eni said it would receive about a third less gas from Russia's Gazprom on Monday compared with average volumes supplied over the past few days.
The head of the International Energy Agency, Fatih Birol, has warned that Russia may cut off gas supplies to Europe entirely and that Europe needs to prepare now.
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Europe told to prepare for Russia turning off gas
Russia has already cut gas supplies to Poland, Bulgaria, the Netherlands, Denmark and Finland over their refusal to comply with a new payment scheme.
Since Russia's invasion of Ukraine in February, Germany has reduced its dependence on Russian gas from 55% to 35% and wants to stop using gas from Russia altogether.
But if Russian supplies were suddenly cut overnight, this could tip Germany into a major recession, because entire industries rely on gas and most German homes use it for heating.
Germany's gas storage facilities are currently about 64% full, German broadcaster ZDF reports.
Industry experts quoted by German media say the chemicals sector would be hardest hit by a gas shortage. It accounts for 15% of Germany's gas consumption, and disruption could lead to shortages of goods such as fertiliser, pharmaceuticals, detergent and cosmetics.
German households and key services such as hospitals will be prioritised for gas supplies under a government emergency plan.
The operator of Nord Stream 2, the recently built Russian natural gas pipeline to Germany, won an appeal in the EU’s top court on Tuesday. The firm is challenging the bloc’s rules requiring separate enterprises to build, operate, and own pipelines. In February, the project was denied certification by Germany due to the EU gas directive.
The EU’s lower tribunal “was wrong to hold that Nord Stream 2 AG was not directly concerned by” the contested legislation, the Court of Justice of the EU ruled, sending the case back to the General Court.
In 2020, the Swiss subsidiary of Russian gas giant Gazprom said it could not appeal against the EU directive that demanded operators be separate from gas suppliers. At the time, the EU’s General Court rejected the company’s claims as inadmissible.
The spat dates back to 2019, when Brussels extended the existing rules on natural gas import infrastructure to cover pipelines owned and operated by third countries, targeting Nord Stream 2. When the pipeline project began, there was no such requirement.
The Nord Stream 2 gas pipeline was ready to start full-scale deliveries in December 2021, despite the sanctions imposed by the US on companies participating in the project. However, in February, prior to the conflict in Ukraine, Germany’s energy regulator refused to certify the project.
The future of Russian gas transit through Ukraine will depend on the actions of European nations, according to a Foreign Ministry official. The EU’s intention to drop Russia as a supplier means that Ukraine will no longer receive transit fees, a senior diplomat has said.
But “if European consumers maintain the demand and the Ukrainian pipeline system remains operational, Russia would consider the option of preserving Ukrainian transit,” Dmitry Birichevsky, the head of the economic cooperation section of the Russian Foreign Ministry, told RIA Novosti in an interview published on Wednesday.
The current transit contract with Ukraine was signed in December 2019 for five years, with an option to extend it for 10 more years. Ukraine considered the deal a major victory.
After Russia’s military operation in Ukraine began in late February, the EU placed sweeping economic sanctions on Moscow, declaring its intention to wean itself off Russian energy.
Ukraine in May announced the suspension of gas transit through one of the two routes used by Russia, claiming it was necessary due to the loss of control over part of the pipeline. The infrastructure in question was captured in the early days of Moscow’s military operation. Russian gas giant Gazprom dismissed Ukraine’s claims that the continued operation of the pipeline was not safe.
The flow of gas through an alternate route to Europe, the Nord Stream pipeline, was disrupted last month. Russia said it had to reduce the capacity by 60% due to Germany’s failure to return a Siemens Energy gas turbine following maintenance. The crucial piece of equipment was stuck in Canada due to sanctions.
Berlin and Ottawa have since negotiated the return of the turbine. Canada, however, has not said when it will be shipped back to Germany. Kiev lashed out at the decision, calling it an erosion of the sanctions, while claiming that Russia could pump more gas through Ukraine instead.
“It’s not Russia’s fault that Europeans are facing winter cold without heating and summer heat without air conditioning. The sanctions boomerang back at the Western economies,” he said.
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