Russia’s energy influence over Europe ‘is almost over’

Germany is currently ahead of schedule in the battle to fill underground gas storage ahead of winter.

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Europe’s dependence on Russian gas appears to be coming to an end, energy and political analysts say, potentially reducing the risk of further supply disruptions at a time when many fear Russia could completely cut supplies this winter.

In recent months, Europe has experienced a sharp decline in gas exports from Russia, traditionally the country̵[ads1]7;s largest energy supplier.

It has intensified a bitter dispute between Brussels and Moscow and exacerbated the risk of recession and gas shortages in the winter.

Russia has stated faulty or delayed equipment as the reason for the reduction in deliveries. However, European policymakers consider the supply cut a political maneuver designed to sow uncertainty across the 27-nation bloc and raise energy prices amid the Kremlin’s crackdown on Ukraine.

Russia’s energy weapons are going to be contested.

Agathe Demarais

Global forecasting director at The Economist Intelligence Unit

Agathe Demarais, global forecasting director at The Economist Intelligence Unit, a research and advisory firm, told CNBC that the Kremlin appeared to be weaponizing energy supplies and “burning bridges” with Europe while they still could.

Asked whether Russia’s energy influence over Europe might be coming to an end, Demarais replied: “Yes. Actually, very much so.”

“Europe is heading for a very difficult winter, probably two years of a very difficult adjustment with a lot of economic pain. But then Europe is essentially going to be more independent with a more diversified mix,” Demarais said.

“And what that means is that Russia’s energy weapons are going to be contested,” she added. “Our view is that Russia knows that, and that’s why it’s already killing gas supplies or creating uncertainty because it knows that if it wants to do damage to Europe, it has to do it now. It’s a now or never question.”

Race to fill gas tank

Until recently, Germany bought more than half of its gas from Russia. Yet Europe’s biggest economy is currently ahead of schedule in its race to fill underground gas storage to have enough fuel to keep homes warm in the colder months.

Analysts told CNBC that Germany has been able to quickly replenish its gas reserves in recent weeks due to several factors. These include strong supply from Norway, the Netherlands and other countries, falling demand due to soaring energy prices, companies switching from gas to other types of fuel, and the government providing more than 15 billion euros ($15.06 billion) in credit lines to fill up storage facilities.

Russia’s energy influence over Europe ‘is almost over’

The latest estimates from the power industry association BDEW show that German gas consumption from Russia fell to 9.5% in August. That is down from a whopping 60% in the same period last year.

Norway has moved in to become Germany’s biggest supplier of gas, BDEW data shows, providing almost 38% of German consumption last month. The Netherlands, the second largest supplier to Germany, was estimated to have supplied about 24% of German gas in August.

Ian Bremmer, president of political risk consultancy Eurasia Group, said via Twitter last week that it “looks increasingly likely that Germany can get through the winter without severe rationing” even in the worst-case scenario of Russia turning off the taps entirely.

That’s “very good news,” Bremmer said. “Russia’s energy influence over Europe is almost over.”

“Winter Has Not Yet Come”

While the EU is on track to beat targets for filling gas stocks, analysts warn that this alone will not be enough.

Demand reductions are expected to be necessary to ensure that stored fuel lasts long enough to support households and businesses through the winter.

Jacob Mandel, senior associate for commodities at the British consultancy Aurora Energy Research, said that if the EU were to fully fill its gas reserves ahead of winter, the best possible scenario would see these reserves last for about three months.

“The threat of shortages remains,” Mandel said. “An unexpected cold situation can quickly deplete the inventory if imports do not keep up.”

While the EU is on track to beat targets for filling gas stocks, analysts warn that this alone will not be enough.

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The latest data compiled by industry group Gas Infrastructure Europe shows that the EU’s combined storage levels are on average over 80% full, while Germany’s underground storage is 84% ​​full ahead of winter.

Andreas Schroeder, head of energy analysis at ICIS, a commodity intelligence service, told CNBC by phone that Russia’s influence over Europe’s energy “is not ending yet, but it is disappearing — slowly but surely.”

But “we’re still in a record high price environment, so obviously the reduced flows are affecting European markets to the extent that we have super high prices,” Schroeder said.

“This is still not over, although Germany is slightly ahead of the storage target and the whole EU is also filling the storage space [levels]. And having reduced dependence on Russian flows, it has produced very high prices.”

“Winter has not yet arrived,” Schroeder said. “If the winter is mild, we need less consumption cuts, but if the winter is severe, we need more. It all depends on [the] the weather now.”

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