The news out of Ukraine has not been encouraging of late, and, as discussed here, if the Russians make a major breakthrough (or worse) the implications will not be confined to that country.
Meanwhile, Europe continues to adjust to the continued absence of (most) Russian gas, something that it has managed to do much better than anticipated (not least by me) a couple of years ago. Nevertheless, as Russia intensifies its attack on Ukraine, it is also trying to increase the pressure it puts on Europe. The same wave of missile attacks on April 11 that destroyed much of Ukraine’s coal-based electricity generation also hit two important gas-storage facilities close to the Polish border, facilities likely to have been used, in part, by companies from other European countries.
As CEPA reports, European natural-gas prices rose 10 percent the next day. They have carried on up since. To put this into perspective, the price (Dutch TTF) is now at around EUR 33.5/MWh, some way below recent peaks, and a long, long way below the peaks seen at times in 2022 and 2023 (for a couple of weeks in 2022 it was approaching EUR 350, before coming down very sharply). Then again, today’s price is more than five times where it was this time four years ago.
CEPA:
These newly targeted [storage] facilities are important to Ukraine and to the numerous European gas companies which use them. They form an important element of the continent’s gas network…
As of 1 April, there were around 750 million cubic meters of gas held by European companies in Ukrainian storage, whose monetary value is over €200m ($213m) at current prices.
But their importance goes beyond that. They have also provided a safety valve to European companies in the last five years. Ukraine’s storage facilities are bigger than those of any European Union (EU) country and amount to about 28% of EU needs…
Ukraine’s energy infrastructure is hanging by a thread, and if Russia continues its attacks, there will be serious doubts about its ability to face another winter. And without Ukrainian gas storage, the cold months will also be extremely difficult for European consumers, who may be deprived of access to secure supplies.
The longer Western partners hesitate to send the air defenses that Ukraine needs, the more the interests of Europeans will be at risk. . . .
Since the Russian-induced energy crisis of 2022, most European countries have invested billions in building new terminals but very little in expanding their storage capacity, pinning their hopes on Ukraine to provide the security they needed.
This news only underlines the foolishness of the administration’s decision earlier this year to “pause” the granting of export licenses to new LNG (liquified natural gas) export terminals. While the pause won’t have any immediate effect on supplies to Europe (new facilities take quite a while to build), it risks, as I noted here, damaging the credibility of the U.S. as an ally at a critical time. It also sends a clear (negative) signal to American companies thinking of investing the billions needed to build new facilities or investing more generally in LNG production. This is not the way either to create U.S. jobs or to play to one of this nation’s key geopolitical strengths.
And, of course, the pause provides an incentive for other countries (the Europeans are not the only customers for LNG) to lock in their supplies from other exporters, pushing prices up. And which other countries are major exporters of LNG? Australia follows the U.S., but Qatar comes next (and it is expanding capacity massively, partly with a view to taking business away from the U.S.). And who is next after Qatar? Well, Russia (although a long way behind). Anyone else? Well, the Saudis are interested in this market. The Australians apart, these are not ideal substitutes for the U.S.
According to Bloomberg (April 11), these attacks were the fourth on Ukrainian natural-gas-storage facilities (there was one, for example, on March 24), so Moscow knows what it is doing. There are plenty of reasons why NATO countries should be providing additional air-defense systems to Ukraine. This is another.