Russian gas exports to Europe hit a new high in August

Russian gas exports to Europe hit a new high in August

Russian President Vladimir Putin has kickstarted the EU’s transition away from Russian gas. After cutting off or reducing gas to Bulgaria, Poland, Finland, the Netherlands and Denmark in April and May, Gazprom exploited the Nord Stream 1 compressor station turbine saga to proceed with new supply reductions. Russian exports fell to a new record of 3.4 billion m3 in August, down 7% from the previous low in July.

Gazprom monthly gas exports to Europe

Source: Gazprom, Entsog, thierrybros.com

The resilience of the European energy market is now being severely tested, as the remaining Russian gas flow is not replaceable. We are therefore getting even closer to systemic risk, unless the EU manages to act in solidarity to prevent German industry from being the hardest hit. The decrease in Russian flow in August is mainly linked to a drop in Nord Stream 1 supplies of 24% month/month.

Breakdown of Gazprom’s monthly gas exports by road

Source: Gazprom, Entsog, thierrybros.com

The dictates of the Kremlin are innumerable. Following the unscheduled additional maintenance of Nord Stream 1 which began on August 31, Gazprom found an excuse to keep the pipeline completely closed until further notice.

In August, LNG emissions were 118% higher than last year and 96% higher than the historical average. The system now has little upward flexibility to attract additional cargo, if needed. The limit where Russian pipeline gas becomes unreplaceable will soon be reached, with Gazprom further reducing supply.

EU LNG emissions (excluding Malta)

Source: GIE, thierrybros.com

At the end of August, EU storage reached 80% but remains below the five-year average for the time of year (82%). This growth is also explained by some destruction of industrial demand as more and more gas-intensive industries such as fertilizer plants are forced to close.

Use of gas storage in the EU

Source: GIE, thierrybros.com

On August 5, the European Council adopted[1] the regulation on coordinated gas demand reduction measures. Poland joined Hungary in voting against. The reduction in gas demand of “at least” 15% at the level of each Member State is watered down by numerous exemptions (Baltic States, Cyprus, Ireland, Malta, Portugal and Spain) or derogations (“storage beyond the interim target of 1 August 2022 should also be taken into account for the purpose of determining the volume of their mandatory demand reduction”, “Member States should be able to exclude gas consumption in ‘critical industries’ when determining the volume of their mandatory demand reduction”, “Member States should also be able to limit the volume of their mandatory demand reduction where such a limitation is necessary to maximize the supply of gas to other Member States” , etc.).

Since voluntary demand reduction measures may not be sufficient to ensure security of supply and continued market functioning, “a new instrument introducing the possibility of mandatory gas demand reduction for all Member States should be established. The Council could, on a proposal from the Commission, declare a Union alert.

“Reducing demand across the Union is an expression of the principle of solidarity, enshrined in the Treaty. It is therefore justified that the Commission strictly monitors the implementation of mandatory demand reductions by Member States. Since the principle of solidarity gives each Member State the right to be supported by neighboring Member States in certain circumstances, Member States requesting such support should also act in a spirit of solidarity when it comes to reduce their domestic gas demand. Therefore, when requesting a solidarity measure, Member States should have implemented all appropriate gas demand reduction measures. The Commission should be able to request the Member State requesting a solidarity measure to present a plan containing measures to achieve possible further reductions in demand.”

The reference is “the average gas consumption over the previous five consecutive years”, with some derogations “for Member States where gas consumption increased by at least 8% during the period from 1 August 2021 to 31 March 2022 compared to average gas consumption”. consumption during the reference period. “Baseline gas consumption” means only the volume of gas consumption during the period from August 1, 2021 to March 31, 2022, in particular for Greece and Slovakia. On the other hand, Finland, Latvia, Lithuania and the Netherlands which managed to reduce their gas consumption respectively by 29%, 18%, 18% and 16% in August 2021-March 2022 compared to the period of reference are not bound by this regulation.

This therefore means that only a maximum of 14 Member States will have to apply this regulation to help Germany. Putin will be watching very carefully which member states request a waiver, to test the strength of EU unity.

Evolution of gas consumption over the last decade

Source: BP Statistical Review, thierrybros.com

To put the challenge the EU faces with its 15% reduction in demand into perspective, we looked at how demand has changed over the past decade. Global and EU demand increased by 5.3% and 4.6% respectively in terms of compound annual growth rate (CAGR) and the worst annual declines were -1.6% respectively (in 2020 by compared to 2019) and -11.5% (in 2014 compared to 2013) respectively.

If we now want to add the nuclear issues in France and the closure on January 1, 2022 of four nuclear power plants out of seven remaining in Germany, we must move on to an analysis of primary energy consumption. Markets have already succeeded, in 2022, in replacing most of the missing Russian gas [2] with LNG. This is equivalent to around 5% of the EU’s primary energy. If we add to the Russian gas which could be completely stopped for the EU (still 5% of the EU’s primary energy) and the nuclear problems in these two countries, we end up with:

Evolution of primary energy consumption

Source: BP Statistical Review, thierrybros.com

A new LNG buyer, Bulgargaz, has launched a tender [3] for the delivery of LNG from Greece. Bulgaria, which was connected only to Romania and Turkey, received mainly Russian gas, under 2 billion m3/year which was terminated in April by Russia and was due to expire at the end of the year. Fortunately, it also benefited from the European Commission’s desire to better interconnect all Member States’ markets with the construction of the Greece-Bulgaria gas interconnector.[4] (IGB), put online in July 2022[5] and allows more Azeri gas to enter Bulgaria via the South Caucasus Pipe (SCP) and the Trans-Anatolian Pipe (TANAP). Bulgaria now receives 1 billion m33/year of Azeri gas. As the capacity of IGB is 3 billion m3/year, the remaining 1bn m3/year missing from the Russian cut will be made up by docking LNG at the Greek Revithoussa LNG regasification terminal (37% used since the start of the war). Russia’s weaponization of gas gives LNG a boost.

Dr. Thierry Freres

Professor & Energy Expert

September 5, 2022



[2] With already some demand destruction