EU: Europe Would Face 45B Cubic Meter Gas Shortage if Russia Stems Supplies

© Reuters

By Scott Kanowsky

AiVIF.com -- Europe would face a massive supply gap if Russia fully cuts off gas flows in July, according to EU energy commissioner Kadri Simson, as concerns rise that Moscow may weaponize energy supplies in response to Western sanctions over its invasion of Ukraine.

Speaking at a news conference on Tuesday, Simson said the bloc would lack up to 45 billion cubic meters of gas supply should the Kremlin choke off supplies during a cold winter. She added that this amounted to 15% of Europe's average gas consumption between the beginning of August and the end of March.

With this figure in mind, Simson explained, the EU agreed earlier on Tuesday to voluntarily slash natural gas demand by that same amount during the period. The move is designed to preserve supplies in case of a slowdown in Russian gas inflows.

"I was very frank with the ministers today on the need for the plan to remain credible. And we have succeeded in ensuring that," Simson said.

The proposal will not require a blanket reduction in usage across the EU, following complaints from several countries - including Spain, Greece, and Italy - with less exposure to Russian gas supplies. They argued that a bloc-wide measure would impose unfair and unequitable restrictions on their citizens.

As a result, energy ministers in Brussels agreed to allow for some flexibility depending on the "particular situations" of each member state should a targeted cut become mandatory.

These exemptions will be reserved for island nations, such as Cyprus and Ireland, that are not connected to European gas networks. Other exceptions will be made for states that are "heavily reliant" on gas for electricity.

A potential extension to this plan will be considered by May 2023, the EU said in a statement.

"The EU is united and solidary. Today’s decision has clearly shown the member states will stand tall against any Russian attempt to divide the EU by using energy supplies as a weapon," said Jozef Síkela, minister of industry and trade for the Czech Republic. "Saving gas now will improve preparedness. The winter will be much cheaper and easier for EU’s citizens and industry."

The EUR/USD was lower after the plan was unveiled, trading down by 0.72% to $1.0147 at 09:41 EST (1341 GMT), as investors fretted that reduced Russian gas supplies may weigh on European growth. Adding to the concerns was an announcement from Russian state-back energy firm Gazprom (MCX:GAZP) that westward flows on the key Nord Stream 1 pipeline would slump by a fifth of its total capacity this week due to maintenance issues.

An anticipated squeeze in supply, following Gazprom's statement, helped push gas prices in Europe up to a five-month high on Tuesday, with ICE Dutch TTF Natural Gas Futures - the benchmark for European wholesale gas prices - surging by more than 10%.