Russian gas exports to Europe hit another record low in August

Russian president Vladimir Putin kickstarted the EU transition away from Russian gas. After having cut or reduced gas to Bulgaria, Poland, Finland, The Netherlands and Denmark in April and May, Gazprom has exploited the turbine saga at Nord Stream 1's compressor station to make further reductions to supply. Russian exports dipped to a new record low of 3.4bn m³ in August, down 7% from the previous low set in July.

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Gazprom's monthly gas exports to Europe

Source: Gazprom, Entsog, thierrybros.com

The European energy market's resilience is now being put to an extreme test, as the remaining Russian gas flow is non-replaceable. Hence we are getting even closer to system risk, unless the EU manages to act in solidarity to avoid German industry being the one to take the greatest hit. The drop in Russian flow in August mainly relates to a reduction in Nord Stream 1's supplies of 24% month/month.

Split of Gazprom's monthly gas exports via route

Source: Gazprom, Entsog, thierrybros.com  

The Kremlin’s diktats are endless. Following the unforeseen Nord Stream 1 extra maintenance that started on August 31, Gazprom found an excuse to keep the pipeline fully shut until further notice.

In August, LNG send-out was 118% above last year and 96% above the historical mean. The system now has little upside flexibility to attract, if needed, additional cargoes. The limit where Russian pipe gas becomes non-replaceable is soon to be reached with Gazprom further reducing supply.

EU LNG send-outs (excluding Malta)

Source: GIE, thierrybros.com

At the end of August, EU storage reached 80% but is still below the five-year average for the time of year (82%). This growth is also explained by some industrial demand destruction as more and more gas-intensive industries like fertiliser plants have to shut down.

EU gas storage utilisation

Source: GIE, thierrybros.com 

On August 5, the European Council adopted[1] the regulation on coordinated demand-reduction measures for gas. Poland joined Hungary in voting against it. The gas demand reduction of “at least” 15% at each individual member state level is watered-down by many exemptions (Baltic States, Cyprus, Ireland, Malta, Portugal and Spain) or derogations ("storage in excess of the intermediate target for August 1 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 limitation is necessary to maximise the supply of gas to other Member States”, etc.).

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

“The demand reduction across the Union is an expression of the principle of solidarity, enshrined in the Treaty. It is therefore warranted that the Commission supervise strictly that the mandatory demand reductions are carried out by Member States. As the solidarity principle gives every Member State the right to be supported by neighbouring Member States under certain circumstances, Member States who ask for such support should also act in a spirit of solidarity when it comes to reducing 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 submit a plan with measures to achieve possible further demand reductions.”

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

So, this means only a maximum of 14 member states will need to apply this regulation to help Germany. Putin will watch with great attention which member states will apply for a derogation, to check how strong EU unity is.

Gas consumption evolution during the last decade

Source: BP Statistical Review, thierrybros.com

To put into perspective the challenge the EU is facing with its 15% demand reduction, we looked at demand evolution during the last decade. The world and EU demand grew by respectively 5.3% and 4.6% in terms of the compound annual growth rate (CAGR) and the worst annual declines were respectively -1.6% (in 2020 versus 2019) and -11.5% (in 2014 versus 2013) respectively.

If we now want to add the nuclear issues in France and the closure on Jan 1, 2022 of four out of seven nuclear plants left in Germany, we have to move to an analysis of the primary energy consumption. Markets already managed, in 2022, to replace most missing Russian gas [2] with LNG. This equals to around 5% of EU primary energy. If we add on top of the Russian gas that could be stopped for the EU altogether (another 5% of EU primary energy) and the nuclear issues in those two countries, we end up with:

Primary energy consumption changes

 Source: BP Statistical Review, thierrybros.com

A new LNG buyer, Bulgargaz, issued a tender [3] for the delivery of LNG from Greece. Bulgaria, which was only connected to Romania and Turkey, was receiving mostly Russian gas, under a 2bn m³/yr contract that was ended in April by Russia and due to expire at the end of the year. Fortunately, it also benefitted from the willingness of the EU Commission to better interconnect all member states markets with the building of the Gas Interconnector Greece-Bulgaria[4] (IGB), which came online in July 2022[5] and allows more Azeri gas to flow into Bulgaria via the South Caucasus Pipe (SCP) and the Trans-Anatolian Pipe (TANAP). Bulgaria is now getting 1bn m3³/yr of Azeri gas. As IGB's capacity is 3bn m³/yr, the remaining 1bn m³/yr missing from the Russian cut will be met by LNG berthing at the Greek Revithoussa LNG regasification terminal (used at 37% since the beginning of the war). Russian weaponisation of gas is giving a boost to LNG.

Dr Thierry Bros

Professor & Energy Expert

September 5, 2022