Gas and power

• Published date: 01 February 2020
• Date: 01 February 2020
• DOI: http://doi.org/10.1111/oet.12758

suggesting it may have a wider impact than first thought—

the World Health Organization declared an international

emergency on 30. By the end of January, Brent had dropped

below $58.50/bbl, with analysts predicting an impact on

global demand of at least 500 000 bpd.

How to cite this article: Oil and Energy Trends.

2020;45:7–8. https://doi.org/10.1111/oet.12757

GAS AND POWER

1|GREAT POWER TUSSLE OVER

EUROPEAN GAS MARKETS

On the 21 December, US sanctions came into force that

effectively halted the construction of Russia's Nord

Stream 2 (NS2)—a gas pipeline that would have helped

Russian exports circumvent Ukraine on route to the

lucrative markets of western Europe, especially Germany.

This was quickly followed by a long-delayed agreement

between Russia and Ukraine over transit tariffs for

65 bcm of gas in 2020, and 40 bcm in four subsequent

years—with Russia facing little choice but to sign given

the NS2 situation. While there has been some success for

Russia following the opening of the TurkStream pipeline

to Turkey and southeast Europe in early January (which

will cut reliance on Ukraine as well), Russia is also facing

vastly increased competition in Europe from record lique-

fied natural gas (LNG) imports, which are helping chal-

lenge its dominant position in eastern Europe.

Russia had been expected to launch the $11 bn NS2

project before the end of 2019, and more latterly by mid-

2020, but monopoly exporter, Gazprom, has now taken

over work from Swiss-based Allseas Group, which was lay-

ing pipeline up until the sanctions were imposed. This

leaves the launch date in doubt—although President Putin

did say it was unlikely to be completed now until 2021.

The Nord Stream 1 pipeline under the Baltic Sea to Ger-

many was completed in 2011, and already provides an

alternative to Ukraine transit for up to 45 bcm/y of gas.

Gas transit fees have been a key source of revenue for

Ukraine over the years, but relations with Russia deterio-

rated sharply following the 2014 Euromaidan protests in

Kiev, and Russia's subsequent seizure of the Crimean

Peninsula and support for a separatist conflict in eastern

Ukraine, which has been simmering ever since. There

had been fears that Russia would switch exports to Ger-

many to NS2, avoiding transit fees and cutting supply to

Ukraine in the process—Russia had done so in the past,

having curtailed supply in 2006 and 2009 over price

disputes.

The United States has made reducing eastern

European reliance on Russian gas a central part of its for-

eign policy in the region. There is pushback against

Russia on the ground in Europe too. Poland is on target

to cancel its gas supplies from Russia entirely, largely for

political and historic reasons. It has quickly upped LNG

deliveries and expects to receive pipeline gas from Nor-

way by 2022. Other countries seeking to reduce reliance

include Ukraine, which received its first US LNG cargo

via a Polish port in November, and Bulgaria (see below).

2|SIMILAR STORY IN THE

SOUTH

The $7.8 bn TurkStream pipeline was opened in early

January. The pipeline will carry 31.5 bcm of Russian gas

under the Black Sea to Turkey's western province, with half

of that volume to flow onto markets in south-eastern and

central Europe, including Bulgaria, Serbia, and Hungary.

Russia had been supplying gas to these markets through an

overland route transiting Ukraine, Moldova, and Romania,

and that gas will now be rerouted through TurkStream.

The EU opposed an earlier project for a larger pipeline from

Russia under the Black Sea to Bulgaria (South Stream),

which has already helped constrain Russian exports.

Russia is only expected to utilize just over half the

31.5 bcm TurkStream capacity in 2020 as Bulgaria has not yet

completed the pipeline that will enable exports to Serbia and

beyond. The total could be even lower due to the increased

competition from LNG, especially from Qatar, the United

States and Egypt, which is currently much greater than had

been anticipated, partly due to weak Asian demand.

Bulgaria, which normally gets all its gas from Russia,

has recently received its first LNG supply via a terminal

in Greece, and US President Trump has discussed more

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