European gas supplies curtailed die to domestic demand in Russia

Moscow Curbs Supplies of Gas Across Europe

Wall Street Journal,

4 February, 2012

BRUSSELS—Russian natural-gas supplies to Europe were curtailed for a third straight day Friday as particularly cold winter weather increased Russia's domestic demand.

"There has been a decrease in gas deliveries," said Marlene Holzner, a spokeswoman for European Union Energy Commissioner Guenther Oettinger. "Russia is experiencing a really cold winter and it needs more gas than usual."

Ms. Holzner said the situation isn't critical because all affected EU members so far are able to meet the supply shortfall by buying gas from neighbors, using storage capacity and importing liquefied natural gas.

The cutbacks come as a number of European countries also face record-cold temperatures and increased energy needs. Russia's gas imports account for roughly 25% of the total EU gas consumption.

The EU Friday afternoon alerted an emergency group of industry, government and energy experts by starting to share information among its members, who will continue to monitor the situation, Ms. Holzner said.

No word has been given on how long the shortfall might last.

Ms. Holzner said that while exact figures for Friday aren't yet available, Thursday's supplies from Russia to Austria declined by 30%, to Italy by 24% and to Poland by 8%. Other countries affected include Slovakia, Hungary, Bulgaria, Romania and Greece.

Gazprom, the Russian state gas monopoly, gave advance warning to EU companies about the possible flow reductions, an EU official said, adding there was no reason to believe any ill intent was behind the disruption.

After two energy crises in recent years, any reduction in gas flows from Russia attracts strong attention in the EU. In 2009, a tough dispute over price between Russia and Ukraine caused Moscow's gas supplies to EU countries to plunge, crippling supply to some countries for weeks. A similar crisis occurred in 2006.

Since the 2009 crisis, the EU has improved its ability to respond to gas shortages.

Member countries have improved storage capacity and re-engineered pipelines to enable the gas to flow in different directions—instead of just from east to west.

Companies in the EU have to guarantee they can supply certain customers for as much as 30 days in the case of an exceptionally high gas demand or a disruption to their infrastructure.

The shortages, however, are likely to reinforce current policy efforts to diversify the sources of Europe's natural gas so there is less dependence on Russia and gas pipelines via Ukraine.

Ukraine, a transit country for around two-thirds of Russian gas supplies to Europe, was the first to be hit. "There is a significant cold snap in Russia and the supply of gas to [Ukraine] has fallen significantly," Ukrainian Energy Minister Yuriy Boiko said Friday in comments confirmed by a spokesman.

The impact on EU member countries has been mixed.

Poland's natural-gas monopoly PGNiG SA said it expects small-scale irregularities in gas deliveries coming over its eastern border in the next few days due to the low temperatures throughout Europe, but said supplies from Gazprom have returned to the amounts ordered.

French power operator and natural-gas distributor GDF Suez SA said natural-gas supplies from Russia dropped 30% as of Friday. Until then, GDF Suez hadn't noticed a drop in supplies from Russia.

In Italy, Russian gas flow was 29% less than requested for Friday via an entry point in the northeast of the country, according to data available on the website of Snam SpA, which runs the gas grid. Russia represents about 30% of Italy's imports, with the rest coming mainly from Algeria, Libya, Norway, and Qatar.

Wingas—Germany's second-largest importer of gas and a 50-50 joint venture between German chemicals giant BASF SE's Wintershall unit and Gazprom—said Russian gas was arriving in reduced volumes, but declined to quantify the amount. Wingas added there was no issue in terms of supply because the company is diversified and has solid levels of storage.

German utility RWE AG said Friday it is receiving about 30% less gas than it has requested Gazprom to deliver amid consistently severe cold weather.

Eurogas, an association representing European gas companies, said the industry can deal with current weather conditions.

"The 50 members of Eurogas will continue to use all options available to ensure that there is no negative impact on EU customers, i.e. households, industry and others who rely on their supplies, or that if there is an impact, this is minimized," the organization said in a statement. 

"The European gas market is set up in such a way that it can deal with extreme weather conditions that occur from time to time."