FT: Cut in Russian Gas Flow Could Speed Up Diversification in Europe

Bulgaria is seen as ‘extremely vulnerable’ if tensions between Russia and the West over Ukraine lead to a cut in Russian gas supplies to Europe this winter, the Financial Times has said.

Yet,  with a recent fall in global oil prices, “the EU is increasingly confident” that Russia doesn’t want to cut its gas sales to Europe and take the risk of pushing more European customers into converting from gas to other fuels, the FT opined.

Russia’s gas export monopoly Gazprom supplies one-third of Europe’s natural gas with half of Europe’s imports from Russia flowing through Ukraine. In many countries of eastern Europe, however, that reliance is closer to 100%.

Recalling the gas crisis of January 2009 when Bulgaria was one of the countries hardest hit by a halt in supplies of Russian gas via Ukraine, the CEO of Bulgaria’s fertilizer producer Agropolychim Philippe Rombaut told the newspaper that next year the company would switch over from gas to biomass as a cheaper alternative.

With Agropolychim and Neochim, Bulgaria’s leading fertiliser plants, consuming together about a quarter of the country’s gas, such radical shift away from Gazprom could mark acceleration in diversification trends.

According to Rombaut, the shift is triggered for financial reasons, with Russian gas prices much higher than those at European hubs such as Zeebrugge, where gas is traded on an open market.

“I am a businessman?.?.?.?this is economics. If I had the same price [for gas] as biomass, I would not go over to biomass,” the FT quoted Rombaut as saying.

Unlike most countries of western Europe, which have  greater diversity of supply routes bypassing Ukraine and big ports for procuring liquefied natural gas from Algeria, Norway and other suppliers, Bulgaria has to rely almost entirely on supplies of Russian gas via its only direct route transiting Ukraine.

However, according to Bulgaria’s former ambassador to Russia Ilian Vassilev, Russia would be eager to avoid any shock that would push the EU to adopt other fuels, the FT said.

“I do not expect that even if gas supplies are interrupted that this will last long – as Moscow is aware that such a move will trigger radical diversification trends in the EU that it will not be able to control,” Vassilev said.

Poland’s  fertiliser group Grupa Azoty, which is the country’s biggest gas consumer, is a notable example. The group, which consumes about 15% of Poland’s annual gas imports, is aiming to have half the 2.3 billion cubic metres coming from non-Russian sources by 2016, the FT highlighted.

In addition to diversifying its gas sources and supply routes, including through construction of cross-border interconnection pipelines, the EU has been accumulating far higher reserves of gas than those in 2009 in preparation for a potential cut in Russian gas supplies this winter. Increased stockpiles would allow most EU states to maintain consumption at usual levels for several weeks or more if Moscow decided to cut gas flow to Europe this winter.

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