BIDEN’S GAS AIR LIFT AND THE IMPACT ON KREMLIN REVENUE: THOMAS W.

O'DONNELL ON THE RUSSIAN GAS EMBARGO 28 APRIL 2022 — AUTHOR

YAROSLAV MARKIN, TETIANA HUZENKO Europe is going to cut the consumption of gas by a ⅔ in 2022, that is obviously will affect the Kremlin’s
revenue. However, an embargo is highly possible as well. Both the Kremlin and the EU, in response to Russia's new war crimes in Ukraine, could stop
the gas flows. In such a case, LNG supplies are to help weather the crisis of 2022-2023 via Biden Air Lift. The last mentioned is being set up by the
US and EU diplomats and is patterned on the Berlin Air Lift of 1949. Berlin Air Lift was a system of food and coal supply during the times when the
USSR had been blocking land routes. This would be the end of Russian gas supplies to Europe forever, an international expert and senior energy and
geopolitics analyst at GlobalBarrel.com, Dr Thomas W. O'Donnell believes. He told Kosatka.Media how quickly Europe would be able to abandon
Russian gas, what alternative supply routes could be used, and whether Hungary and Austria, obsessed with Russian gas, could prevent this. The
analogue of Putin’s army in the energy sector How much gas does Europe import from Russia per year? Who are the major consumers? There are
two different market processes whereby Russian gas is purchased by Europe. If we speak about only gas delivered by pipeline, these are: І. Via
long-term contracts, agreements which are for natural gas to be delivered for several years, perhaps from five to as much as 20 years. ІІ. Via the
“spot” market. These are short-term contracts for gas to be delivered the following month. It is also possible to buy gas day-by-day, where traders
agree to a price for gas delivered the next day. Here, gas traders consult the future’s market, which has set the price for gas delivered the next
day, or the next month, or some number of months in the future. So, currently, Russia delivers natural gas under long-term contracts via these
pipelines to Europe: a. Nordstream 1 at a rate of about 55 billion cubic meters per year (bcm) directly to Germany via the Baltic Sea b. Yamal -
Europe Pipeline – via Belarus, Poland and into Germany. There is no longer any Russian obligation under this contract to deliver natural gas on this
route. It can, however, opt to book transport capacity if it wants to send spot gas ordered by customers in Germany or elsewhere in Europe. The
capacity of this pipeline is 35 bcm. However, very little has flowed since August 2021. In fact, many times, its flow has been negative – i.e., from
Germany going west into Poland, drawing gas out of storage sites in Germany. According to the Warsaw Institute, “the Yamal natural gas contract,
signed in September 1996, between the Polish gas company PGNG and the Russian energy giant Gazprom, expires on December 31, 2022, and will not
be renewed, since gas will be imported from Norway from the 1st of October,” c. Brotherhood and Soyuz Pipeline systems, via Ukraine, at about 40
bcm. This has continued flowing even during the present war. The physical capacity of this route is very much greater; but Gazprom has for many
years planned to reduce this flow to zero. d. The Turkstream Pipeline, String 2 flows into the Balkan States of Europe via the Black Sea and Turkey,
while String 1 flows only as far as Turkey. Each string has a capacity of 15.75 bcm. However, String 2 was inaugurated only two years ago, and
extensions are still under construction going north into, for example, Serbia. So, from 1 January 2020 till 31 December 2021, its flow was constantly
ramping up. It delivered a total of 16.8 bcm over those two years, and it now delivers a bit less than its 15.75 bcm full capacity. This totals to about
110 bcm that was delivered to Europe on an annualized basis in Q1 2022. By one estimate, this amounted to “45% of EU's gas imports, earning
$900M US a day.” A very good source of data on Russian energy supplies to Europe is provided by Bruegel Institute researchers and is constantly
updated. There are their Russian gas flow charts for yearly flows and the last 30 days. Aside from long-term contracted flows, Russian gas
provided via short-term spot-market contracts has dropped to essentially zero since August 2021. The decision by Gazprom and Putin to stop spot
sales has been a form of weaponization of Europe’s over-dependence on Russian gas. It is important to realize that state-owned Gazprom is not an
ordinary gas company. It makes much less profit than a private company would using the same Russian resources because the company has long
been used as “an instrument of state” similar to how the Russian military is “an instrument of the state.” Putin and Gazprom CEO Alexey Miller
stopped spot sales to Europe last year even though the very high prices at the time could have reaped the Russian state's big profits. It was
especially important to European energy security that its storage be massively replenished during the filling season of April-October 2021, by
Russian pipeline imports of spot-purchased gas. This was the source Europe had come to rely on for many years to fill storage before wintertime.
This was critical for the EU because its gas in storage had run very low during the winter of 2021-2022 due to overreliance on wind energy and then
a lack of windy weather, plus a very cold winter that further depleted European storage. However, Gazprom completely neglected to provide this
expected service in the 2021 storage-filling season, which left the EU now in a very difficult situation throughout winter 2021-22 just now
ending. Luckily, the winter was not as cold as the previous one and the wind was not as weak either and a gas-supply shortage crisis was
averted. However, the Eu suffered very high prices due to the low levels of storage and the historically high levels of LNG that it was forced to
import to substitute for Russian pipeline supplies, especially from the USA and Qatar. European purchase prices for LNG had to go substantially
above the price Asian customers were willing to pay in order to divert LNG purchases that would otherwise have gone to Asian customers. Russian
liquified natural gas (LNG) can also be bought via long-term contracts, or on the spot market, one shipload at a time. These sales have now ended as
far as I can determine. The end of Russian supplies to Europe How much time does Europe need to completely abandon Russian gas? Is it possible
for the EU to cut the consumption of Russian gas by ⅔ by the end of the year? Indeed, the EU can cut its purchases of Russian gas by two-thirds by
the end of this year, 2022. This is the target set by the European Commission and President Van der Leyen. As reported by the EuroActive News
service: “The plan, called REPowerEU, aims to “eliminate” Europe’s dependence on Russian gas before 2030 and outlines measures to ensure gas
storage is filled up to at least 90% for next winter in order to cope with potential supply disruptions.” This would be a huge hit to the revenue the
Russian state needs to finance its war and reduce the effects of the economic crisis which will grow inside Russia over the next two-to-three
months due to Moscow’s central bank’s reserves being frozen in Western central banks. What is very significant in stopping gas sales to Europe is
that Russia has no alternative to sell this gas somewhere else for some years. It will be necessary for Russia to build hugely expensive new
pipelines from the Urengoy and Yamal Western Siberian natural gas fields all the way to China, via Mongolia (a pipeline plan called “Power of Siberia
2” which Gazprom had estimated last year could cost $10 billion, and other similar projects. In anticipation of this catastrophe for the Russian gas-
export sector, Putin, just yesterday (14.04.2022) ordered new pipelines to be built to redirect flows to the East and South, saying: “…, it is important
to consolidate the trend of recent years – to reorient our exports step by step to the fast-growing markets of the South and East. To do this, in the
near future it is necessary to identify the key necessity of infrastructure facilities and begin their construction.“ There is no single answer to the
question of how soon Europe can end its purchases of Russian gas. A two-thirds cut should be possible if the EU maintains its political will. It is
necessary for the EU and the USA to consider what to do if Putin foolishly cut off all gas exports – which is very unlikely if he acts rationally, as his
regime desperately needs these revenues to replace the Russian foreign exchange which the USA and EU have frozen in foreign central banks. On
the other hand, the same situation has to be soberly considered by the USA and EU, in the event that new crimes of Putin’s military in Ukraine soon
force them to accelerate their gas-sanctioning schedule and cut all supplies suddenly. Consider what needs to happen. In either case, the EU would
have to find a way to immediately live without Russian gas. This would be the most dramatic case – a total and immediate cut. In my view, and that
of some other knowledgeable analysts, his would not be able to be resolved simply through market mechanisms alone. There are already
considerable efforts to increase flows by pipelines from neighboring non-Russian suppliers. Supplies from Norway are already at their maximum.
However, negotiations have succeeded in contracts to increase flows to Spain and Italy from North Africa, and more efforts are underway. However,
the really important increases would have to be LNG. New capacity to liquify and export LNG cannot be created immediately – this takes several
years. So, this would require sharing the total amount of LNG now produced in western-allied nations in a different manner than it is now distributed
by market forces. This would entail an effort like the “Gas Air Lift” modeled on the "Berlin Air Lift” of 1949 which was organized then by the USA to
supply Berlin with food and coal when its overland supply routes from West Berlin had been blocked by Russian leader Joseph Stalin in an attempt to
force W. Berlin to force the Allies and Germans in West Berlin to agree to give up the city to full Russian control. The Biden administration has
already been working on a version of such an effort since at least January. At the end of January, the Editorial Board of the Wall Street Journal
described “Biden’s Berlin Gas Airlift” as already being organized with efforts to diplomatically convince Asian buyers of Mideast LNG supplies to
agree to divert some of their long-term contracted LNG purchases to Europe, a USA project underway over a month before the new Russian
invasion of Ukraine began on 24 February. Now, a plan for such an effort has been described in detail by USA expert researchers at the Baker
Energy Institute at Rice University in Texas, They foresee a massive international effort of all Western allies today organized chiefly by the USA,
along with EU diplomats, to convince allied countries, mostly in Asia, such as Japan, South Korea, and Taiwan, but others as well, to agree to share a
considerable part of the pain that would be felt in Europe if Putin cut gas supplies. Rationing and conservation would be implemented not only in
Europe (e.g., it would be very important for homes and hospitals to continue receiving gas for heating, meaning some industries would be forced to
reduce their work hours); but also by Asian allies, acting in solidarity, so that they could give up a considerable percentage of the long-term LNG
contracted deliveries they normally would receive from especially Qatar, and from other countries such as the USA, Algeria, Australia, etc. In turn,
the Asian allies would have to maximize use of coal and nuclear power. This would be a tremendous international effort of solidarity with Europe and
most especially with the Ukrainian peoples’ war of national resistance. The European continent would survive the crisis next winter of 2022-23, and
slowly new LNG export capacity would be built in the USA, Qatar, North Africa, Latin America, Africa, Australia and elsewhere, and new import and
regasification terminals and pipelines would be built in Europe, and especially in Germany where they are desperately needed. And this would be the
end of Russian gas supplies to Europe forever. Alternatively, if Putin does not suddenly cut supplies to the EU, and the EU does not decide to fully
stop taking his gas very soon – a political decision which it seems right now very difficult for the EU to take, considering the differences on this
matter between member states, especially countries such as Hungary who are sympathetic to Russia and like the big player, Germany, which, in my
view, constantly exhibits excessive caution. For now, most likely the EU will proceed on its timetable to eliminate two-thirds of Russian gas, going
gradually, over this year. Nevertheless, this cannot be achieved without implementing some of the measures the Baker Institute researchers
described, to reduce dependence as fast as possible. The USA Biden administration has been very active diplomatically with the Qatari and allies in
Japan, So. Korea and Taiwan, and has already achieved agreements with Qatar to divert supplies destined for Asia to Europe. These efforts are
continuing with North African producing states too, and the EU leadership is also diplomatically engaged now in this effort, especially Italy and Spain
in North Africa. When Biden visited Europe in late-March, he promised an additional 15 bcm this year, without saying how and from where it will
come. I assume this involves both more LNG diverted by the USA and especially Qatari producers from their usual Asian customers to Europe
instead. Already, the USA is exporting about 75% of its LNG output to Europe – a rather astounding increase from the previous year. However,
Qatar’s exports are tied up with a high percentage of long-term contracts to Asia – reportedly over 80% of its output – and achieving agreements
for more of this to be diverted to Europe has the must potential. If I had to predict, I would say the EU will next winter purchase can and will
purchase only one-third as much gas from Russia as it did this past winter. However, this is very difficult to say. The political debates are still
underway in Europe and Brussels. In this, it is especially important, in my view, for Germany, which has been the key partner with Russia for almost
50 years, establishing this dangerous overdependence of the EU region on Russian gas, to keep finding ways to increase its “ambition”. If Berlin is
really serious about its “Zeitenwende”, which many German press and commentators have warned seems to be largely “rhetoric”, there are many
things it could do now. For example, it could abandon its ruinous and ideologically driven plans to eliminate its last nuclear plants and immediately,
reopen several recently closed nuclear plants, and decide to build new ones. Only this, along with renewables, and massive new LNG imports, can
free Germany from Russian gas dependence. Where can Europe get gas? What could be the main routes for non-Russian gas supplies to Europe?
Some new pipelines for natural gas from the Caspian region; but especially North Africa – from Algeria, Tunisia, Egypt, perhaps Israel, can help.
Some are practical projects that can be done in a few years, some are very challenging such as the East Med pipeline. Some countries not going to
abandon Russian gas (Hungary, Austria). Do they really have no alternatives? When the EU decided to abandon Russian natural gas, they will
eventually be forced to do the same, as Member states. They will resist and cause delays, as you can imagine. However, I must stress – here
Vladimir Putin is his own worst enemy when it comes to his oil and gas business in Europe. We might be disappointed right now, seeing less
“ambition” than we would like to see in Europe to cut Russian gas imports as fast as possible. However, it is clear from Putin’s method of war so
far, that his military led now by a general who desserves his nickname, “the butcher of Syria,” that the atrocities the Russian military plans for its
new campaign in East and South Ukraine will disgust European civilization. This reality plus the continued inspiring resistance of the Ukrainian
people, will, I am sure, spur the EU and Berlin as well, to find more “ambition” to cut Russian oil and gas, much quicker than many who now are going
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