German finance minister: 'Germany can't be blackmailed'

London (CNN Business)Europe was hit this week by yet another abrupt interruption to its supply of natural gas from Russia — the latest incident underscoring the vulnerability of the continent’s energy supply.

Even as the war has raged for more than two months, gas from Russia has continued to flow westward, much of it via pipelines in Ukraine. But late Tuesday, Ukraine’s gas transmission system operator said it had suspended gas shipments through its Sokhranivka transit point, which processes as much as 32.6 million cubic meters per day. That’s about a third of Russia’s gas flowing through Ukraine to Europe.
The Ukrainian operator blamed “interference by the occupying forces” in announcing the route’s suspension. It accused Russian forces of tampering with the transit point and siphoning off gas. As a result, the operator said the “stability and safety of the entire Ukrainian gas transportation” had been compromised, and it was forced suspend gas flows.

    It wasn’t clear when gas flows through Sokhranivka would resume.

      The broader impact has so far been limited. While Ukraine transports in total about 30% of Russia’s gas supply to Europe, according to the Independent Commodity Intelligence Services, the pipeline affected accounts for just 2.3% of Europe’s overall gas supply.

      European natural gas prices rose 5% Wednesday morning, but have since fallen back below Tuesday’s closing levels, according to Rystad Energy.
      The modest market reaction was largely thanks to healthy gas storage levels, mild weather and a record volume of liquefied natural gas imports into Europe last month, said Tom Marzec-Manser, head of gas analytics at ICIS.

        “The market is actually pretty well supplied at the moment, all things considered,” he said.
        But the shutdown raises the uncomfortable prospect of further disruptions to Europe’s gas supply as the fighting continues — and comes just two weeks after Russia halted gas shipments to Poland and Bulgaria. The consequences could rattle markets and send already-elevated energy prices even higher.
        According to the International Energy Agency, Russia accounted for about 45% of Europe’s total gas imports in 2021.
        But the European Union is proposing to slash its consumption of Russian gas by 66% by the end of the year, and to break its dependence completely by 2027. A more detailed plan is expected later this month.

        Redirecting gas flows

        The Sokhranivka shut-off creates a shortage of 16 million cubic meters a day, said Kateryna Filippenko, principal analyst for global gas supply at Wood Mackenzie. But “there is enough physical capacity to fully compensate for this disruption,” she told CNN Business.
        Ukraine’s gas operator said it can ramp up gas volumes at another transit point, called Sudzha, which is located farther west in territory the Ukrainian government controls.

        Russian state energy giant Gazprom has refused to book additional flows along this alternate route — saying that would be “technically impossible.”
        Nonetheless, Filippenko said the impact would be slight and Europe should still just about meet its gas storage targets for later this year, she said.
        EU gas storage facilities are about 37% full, according to data from Gas Infrastructure Europe. That’s about normal for the time of year, but a way off the 80% target the bloc has set for November.

        Further shut offs?

        Still, with the war raging, further shutdowns of key transit routes can’t be ruled out, analysts say.
        Moscow has already turned off the taps to Poland and Bulgaria, making good on President Vladimir Putin’s promise to halt gas flows to “unfriendly” countries refusing to pay their bills in rubles, rather than the euros or dollars stated in their contracts. So far, gas has continued to flow to much bigger customers in other EU countries.
        Kaushal Ramesh, a gas and LNG analyst at Rystad Energy, told CNN Business that infrastructure damage caused by fighting was always the “more realistic scenario” behind a drop in Russian gas flows to the bloc.
        Ramesh said the European Union should set up a buyer’s alliance, in which countries would jointly procure gas shipments from all suppliers, “as soon as possible” to prevent countries from competing for the same gas supplies and driving up prices.
        Central and Eastern European countries would be most directly affected by the drop in Russian gas flows through Ukraine, according to a research note by consultancy Eurasia Group.
        Germany, the bloc’s biggest economy, is particularly reliant on Russian natural gas, but it is relatively insulated by the latest shutdown. Most of its gas imported from Russia is carried via the Nord Stream 1 pipeline through the Baltic Sea, Susanne Ungrad, an economy ministry spokesperson, told CNN on Wednesday.
        Still, Wednesday’s incident does not bode well for Europe’s energy supply in the near term.

          “The developments are only the latest in a string of a steady deterioration of security of supply amid the war,” Eurasia Group said.
          — Benjamin Brown contributed to this article.
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