The Financial Times, April 7, 2014

Sir, If the supply of Russian gas was to be interrupted within three months, most of the EU could make it. On the average summer day, the 28 members of the EU receive about 250m cubic metres (mmcm) of gas from Russia. This is less than the spare production capacity of Norway, Algeria, Libya and the Netherlands. Storage gas could fill the supply gap until Dutch, Norwegian and North African gas reached European customers.

Non-Russian gas is unable to reach the isolated gas grid of Finland. Also isolated, the three Baltic states are not completely helpless as there is a huge storage facility in Latvia. It would take a few days to divert the new gas flows to Slovakia and, especially, Bulgaria, while the rest of the EU might not notice the lack of Russian gas on a warm summer day. If the flow is not restored in two weeks, Europeans would naturally start worrying about the winter.

On the average winter day, when both domestic and external gas producers work at capacity, the EU 28 need about 450 mmcm of gas coming from Russia. The least expensive replacement of a part of this flow can be found right across the eastern border of the EU. Ukrainian storage facilities could supply about 100 mmcm a day assuming gas is injected before the start of heating season. For injection, Europe needs about 80 mmcm a day, which would require synchronisation of maintenance schedules of different producers in summer time.

There is another relatively inexpensive source of additional gas. Restoration of nuclear power in Japan would free up to 100 mmcm a day of LNG, part of which may be diverted to Europe. In general, the EU could fairly easily survive the loss of Russian gas flow through Ukraine, as it can be fully replaced by other pipelines of Gazprom (Nord Stream, Yamal-Europe) and withdrawals from the Ukrainian storage facilities. Complete loss of Russian gas supplies in the summer could be handled with the help of other domestic and foreign producers.

However, the winter season of 2014-15 without Russian gas would be tough as the EU could substitute just about a third of Gazprom supplies in the best case. From today, the EU can afford to lose 250 mmcm a day of Russian gas for another six or seven months. I doubt Gazprom and Russia’s budget can lose $100m a day for long. That is why Gazprom starts “gas wars” in December ."

Mikhail Korchemkin

President

East European Gas Analysis

Malvern, PA 19355, US