The war for Russian natural gas will cause Western alliances to crumble

Western alliances to fall in the struggle for Russian natural gas

In the coming months, we are going to witness a tough struggle for Russian LNG (liquified natural gas) contracts. There is every reason to believe that Western alliances are going to fall apart, while Russia will get a chance to build and strengthen its alliances.

Western alliances will collapse in the war over Russian LNG

Josep Borrell, EU High Representative for Foreign Affairs, noted that the EU managed to reduce Russia's share in gas imports from 40% at the beginning of the year to 20%. This was made possible, among other things, owing to an increase the share of LNG. However, it turns out that this LNG is also Russian, and this winter there will be a life-and-death struggle for it.

Anglo-Saxons break up alliances with Europe and Asia

According to The Wall Street Journal, Europe will have to fight with Asia for Russian liquefied natural gas in the coming months. Against the backdrop of considerable decline in exports of pipeline gas from Russia and an almost fivefold increase in the cost of gas in Europe, the LNG price in Asia and Europe has equalized.

LNG exporters today benefit from breaking long-term contracts with Asian customers, even if they need to pay compensations and redirect supplies to the EU. According to Reuters, Belgium's LNG imports from the US increased by about 650%, while Pakistan's US LNG imports collapsed by 72%.

Bloomberg said that there will be a sharp rise in energy prices if the upcoming winter is going to be colder than usual. During the year, the cost of gas has grown almost five times.

Against the backdrop of this situation, the United States and Australia that previously promised assistance to their European allies in the supplies of LNG already announced that they could limit exports in order to increase domestic supplies and fill their own UGS (underground gas storage) facilities. The US resorts to the Atlantic hurricane season as an excuse and says that it is expected to be well above average.

Germany's Handelsblatt pointed out that representatives of Bangladesh already accused the European Union of "poaching" LNG producers with money and "plunging millions of people in developing countries into darkness."

Germany starts taking LNG from India

The United States and the EU want to get India involved in capping the price of the Russian oil.

Germany does not care about such intentions. Anticipating a catastrophe, Berlin, in violation of the contract, began to take LNG from India, which should receive it under the Yamal LNG contract. Indian GAIL has a long-term contract for the supplies of 2.5 million tons of LNG per year through the former subsidiary of Gazprom, Gazprom Marketing and Trading Singapore (GM&T Singapore), which was taken over by the German government in early April.

GMTS informed the Indian company that it would not be able to fulfill its contractual obligations. The company said that it was ready to pay a penalty in accordance with the contract. The penalty that GAIL will receive from GMTS will be too small to offset the price GAIL will pay to buy LNG on the spot market.

India already experiences shortages in gas supplies both to fertilizer plants (by 10%), and to other industrial consumers (by 10-20%). Moreover, GAIL uses only 60% of its petrochemical complex in northern India.

Russia has a chance to strengthen alliances

There is only one way out for India, Bangladesh and other Asian countries — to set up alliances with Russia against the West.

Turkey took an advantageous position in the gas war. Turkey maintains neutrality, closes straits, opens airspace and refuses to join anti-Russian sanctions. Against such a background, Turkey has become a hub for Russian pipeline gas exports (Turkish Stream gas pipeline system).

At a recent summit in Istanbul, Moscow and Ankara discussed gas supplies to Turkey and agreed on the gradual implementation of national currencies in mutual settlements.

However, if Europe fails to compete with Asian countries, LNG supplies from the US to Europe will be reduced to a minimum or completely stopped. In this case, EU countries will have to return to pipeline gas from the Russian Federation.

As sanctions and counter-sanctions intensify, the Western camp is likely to split in disputes about their interests. Internal political struggle will escalate as well. High energy prices may trigger a crisis that will lead to social unrest.

Bulgaria will suffer more than others from the gas war. At the end of April, Russia cut off Bulgaria from gas supplies after Bulgaria refused to pay for the fuel in Russian rubles. Bulgaria depends on Russian natural gas almost completely. Bulgaria tried to increase its purchases of LNG, targeting suppliers, including the US, although to no avail.

Bulgaria, Spain, Portugal and Croatia will run out of storage by December even if their gas storages are full. Germany has the largest storage tanks in Europe, but the demand for gas is just as large. Gas tanks only last for 108 days of consumption. Therefore, full tanks will be empty by February 16th.

The Czech Republic receives gas from Germany through a branch from the Nord Stream 1. It does not look like Berlin will want to share. Gas further flows to Slovakia, Austria and Italy — these are all transit countries, they do not have their own terminals and branches.

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Author`s name Lyuba Lulko
Editor Dmitry Sudakov