Ukraine crisis raises concerns over security of European energy supplies

As Europe looks on with concern at the escalating crisis in Ukraine, one of the many aspects troubling Belgians is the possibility that a war in eastern Europe could disrupt energy supplies. The price of oil has already risen in reaction to Russia’s build-up of troops and gas supplies could also be affected should a full-scale invasion take place and punitive sanctions are imposed on Moscow.

However, while 40% of the gas imported into Europe comes from Russia, Belgium receives only 4 to 6% of its gas from the country.

A study conducted by the Federal Department for the Economy on the country's security of supply of natural gas details the different entry points for imported gas into Belgium. Gas coming from Russia, entering through a pipeline at Eynatten, represents only 4.1% of all gas imported into Belgium. By way of comparison, almost half of the gas, 48.3%, enters Belgium in Zeebrugge, and comes from other areas.

According to a spokesperson for Fluxys, operator of the Belgian gas network, Belgium is a "hub of the Western European gas network". This means that the routes of entry of gas into Belgium are multiple and several alternatives to Russian gas exist.

Belgium has connections with Norway, England, and the Netherlands, for example. In addition, there is the Zeebrugge gas terminal and the connection with the Dunkirk terminal in northern France. "In total, Belgium has the possibility to import by boat or pipeline via 18 interconnection points," said the Fluxys spokesperson.

The Zeebrugge gas terminal, with a capacity of 50 billion m3 of gas per year, provides three times as much gas than the Belgian market needs, which is about 17 billion m3 per year, according to Fluxys.

With such a low percentage of Belgium’s gas coming from Russia, dependence on this supplier is quite low.

In the short term, according to Fluxys, if the Russian tap were to close, Belgium would have the ability to "take relatively fast measures" through its multiple connections and entry points "within two to three hours, without this having an impact on the price", according to Fluxys. This is for the very short term, to cover immediate needs.

Other countries' dependency could cause energy prices to rise

The difficulties could come from other European countries. Some of them are much more dependent on Russian gas. In Europe, 40% of the gas consumed comes from Russia. In Germany, it's 66%. If these large buyers of Russian gas were to find alternatives from other suppliers, it would weigh heavily on the markets. "Even if we don't import a lot of Russian gas, it could have consequences for the markets and the volatility it can bring to them," said Francesco Contino, a professor and energy specialist at UCLouvain.

Price rises in the gas markets could therefore be a consequence of the Russian actions, even if, in the opinion of several specialists, it is still too early to predict. "To say that what is happening in Ukraine will automatically create an exponential and explosive increase in the price is not yet totally guaranteed," says Francesco Contino, "especially since we are coming out of winter and that, suddenly, we will be able to benefit from mild weather and lower gas consumption."

A reduction in Russian gas supplies to Europe would, for the CREG, the Electricity and Gas Regulatory Commission, have consequences, because the formation of gas prices is made at European level in the form of quotation. "A halt in Russian gas deliveries would have a significant upward impact on prices because Russian gas accounts for 40% of gas imports into the EU," said Laurent Jacquet, Director of CREG. He also draws attention to the fact that the quantities of gas to be imported from Russia could be larger in the future, to compensate for the scheduled end of gas deliveries from the Netherlands to Belgium, France and Germany.

As for the price of gas, market prices for delivery in the course of 2022 "have certainly increased by about 10% today compared to yesterday and currently amount to about €80 / MWh for the month ahead," said Laurent Jacquet. "But we remain far from the peak of €180 / MWh reached on December 21, 2021," he added, while noting that "the current tensions are, however, exerting an upward effect on the price of gas".

"Throughout the Cold War, the Russians never cut off gas supplies,” said Xavier Timmermans, energy market expert at BNP-Paribas Fortis. “The Minister of Energy in Russia has confirmed that he will continue to respect these contracts, but there is still a doubt, and it is this doubt that drives up gas prices."

On the other hand, there is nothing to say, at this stage, that the Russian gas tap will close completely. This was the point of view defended a few days ago by Adel El Gammal, expert in the geopolitics of energy, professor at the Polytechnic School of the ULB and Secretary General of the European Alliance for Energy Research. "Europe accounts for 70% of Russian gas exports. This is an absolutely essential windfall, and the country cannot deprive itself of it in the long term," he said. However, he did not rule out the possibility that Russia would supply less gas and not meet Europe's demand for additional supplies.

Gas now appears to be a necessity for many countries engaged in an energy transition. Europe is no exception and will need more and more gas.

How gas is imported

To import gas, two techniques are used. On the one hand, there are gas pipelines, with the gas transported under pressure through pipes. At the end of 2021, about three-quarters of the gas imported by Europe was transported in this way and is the case with Russian gas. More Russian gas could be transported to Europe via the Nord Stream II pipeline, which passes through Germany. However, after Russia ordered troops into the breakaway Ukrainian republics of Donetsk and Luhansk after President Vladimir Putin recognised them as independent states, German Chancellor Olaf Scholz halted the approval process for the Nord Stream II gas pipeline.

The other technique of transporting gas is by boat. Natural gas is liquefied (LNG). About a quarter of the gas imported by Europe is imported through this means. This mode of gas transport is under development. It makes it possible to diversify the sources of supply. Europe can thus import LNG from countries such as Qatar, Algeria or the United States. Moreover, in recent years there has been a significant increase in LNG imported from the US.

Alternative gas suppliers

Recently, Europe has made diplomatic contacts with other countries for the import of larger quantities of liquefied natural gas (LNG). For example, Japan recently agreed to deliver part of its LNG to Europe.

That said, while it will be useful for Europe to diversify its gas supply sources through LNG imports, it will not necessarily be easy because it is an increasingly in demand. According to Shell, global LNG demand is expected to increase from 300 million tonnes in 2020 to 700 million tonnes in 2040. For the moment, it is mainly Asian countries that are emerging as major consumers of LNG, especially India and China. Shell expects LNG demand to increase by 100% to 200% in Asian countries, where Europe would only increase its imports of liquefied natural gas by 7%. This global competition in the LNG market risks curbing Europe's ambition to rely less on Russian gas.

In the short and medium term, if the crisis between Russia and Ukraine continues, liquefied natural gas prices could also rise. And so, Belgium, which consumes less Russian gas but more LNG, would not be spared. "We use a lot of liquefied gas, but we pay for it at the international rate,” said Xavier Timmermans of BNP-Paribas Fortis. “The price of liquefied gas is dependent on the price of Russian gas." He added that price variations on the gas markets are also reflected by the contagion effect on crude oil markets. It is therefore no coincidence that on Wednesday, the markets anticipated a further rise in the prices of petroleum products by pushing up the price of a barrel of Brent, the oil coming from the North Sea, to nearly $100.