The focus is now on two countries, with Russian gas not flowing to Poland and Bulgaria since Wednesday morning. Russia’s Gazprom has tightened after he said the two countries had not paid for rubles, as required by a decree by Russian President Vladimir Putin.
The Kremlin has been threatening this move for a long time. There are now growing concerns about whether other countries may come next and whether the Czechia may be among them. At the same time, the current situation significantly weakens the price of natural gas for the European market.
Is the Czech Republic in danger of the Russian gas concern Gazprom shutting down gas?
According to Prime Minister Petr Fiala (ODS), there is no threat of a stoppage of supplies to the Czech Republic and gas is still flowing to us. “According to our information, there is no direct impact on the Czech Republic now. Czech traders mostly buy natural gas on Western European stock exchanges or from Western European traders, “the Ministry of Industry and Trade (MIT) states on its website.
Neither the state nor Czech companies buy gas directly from Gazprom. The raw material is sold to them by various foreign companies, such as Uniper, RWE Supply & Trading, Engie or MVM CEEnergy CZ, but it is physically a supply from Russia.
“The situation affects us indirectly, because we will depend on the attitude of large Western European companies, which supply our market with the volume of gas that Czech customers then buy. If they don’t get gas, they wouldn’t get to us either, “says Jiří Gavor, director of the Association of Independent Energy Suppliers.
According to him, there are about 150 companies in Europe that have such a contract with Gazprom. “In my opinion, it is very unlikely that everyone would follow Poland’s example and refuse to pay in rubles,” says Gavor. According to him, the April invoices for Russian gas are due by the middle of May, after which it will be revealed.
Is the Czechia ready for the scenario that Russian gas will not be?
According to the Ministry of Industry and Trade, the current gas supplies to the Czech Republic are stable, but the Czech dependence on gas from Russia is almost 100%. “We would be able to do it for a while, then of course it would be necessary for the EU and other states to help us and we would work it out together. If Russia stopped supplying to the Czech Republic, it would probably stop supplying to other countries as well. If they close the taps now, we will be able to deal with the combination of stocks and other suppliers immediately, “said Prime Minister Petr Fiala.
However, the Czech Republic does not maintain strategic natural gas reserves and must make do with what it has in the storage facilities operated by RWE Gas Storage and MND. Their total capacity is about three billion cubic meters, ie about a third of the consumption of the entire republic in 2021.
According to data from the gas infrastructure operator in Europe, the Czech storage facilities are approximately 38 percent full. According to the Ministry of Industry and Trade, they contain 925 million cubic meters of natural gas. “This amount roughly corresponds to last year’s consumption in the Czech Republic in May and June. If consumption is reduced, stocks would last longer, “he says.
How will prices develop?
Already on Tuesday evening, when Poland and Bulgaria were announced that Gazprom would cut off their supplies, gas prices on the European stock exchange began to rise by as much as 12 percent. Experts predict that the price of gas for the European market will continue to rise during Wednesday. In the morning it increased by 20 percent and temporarily reached 125 euros (3064 crowns) per MWh.
Further price developments will depend on the progress of European countries and Russia itself. A year ago, the price of gas on the stock exchange was around 18 euros per megawatt-hour. However, it has been rising sharply since last autumn and the market is even more volatile due to the Russian invasion of Ukraine.
Does the state have prepared scenarios on how to help with rising prices?
The Ministry of Industry and Trade and the Ministry of Labor and Social Affairs (MLSA) count on several options for helping households and companies with expensive energy. However, as they say, they want to help in a targeted manner and only for the most vulnerable. For example, the widespread remission of 21% VAT, the abolition of RES fees or the capping of energy prices have long been hampered.
The MLSA has therefore increased housing allowances for low-income families who have problems paying energy bills. On the contrary, the Ministry of Industry and Trade has prepared assistance for small and medium-sized enterprises in the form of a bank guarantee, and compensation for indirect costs of emission allowances is being prepared for companies with high energy consumption.
Does the Czechia have alternative ways to get non-Russian gas into the country?
Many European countries, including the Czech Republic, want to gradually cut themselves off from Russian energy supplies. Therefore, a strategy for expanding deliveries and transport routes is being prepared. “A number of concrete steps are already under way. For example, the legislative environment for the acceptance of Norwegian gas in the Czech Republic is being prepared; according to preliminary information, Norwegian supplies can provide about a quarter of domestic consumption. The basis of such a scenario is a common approach at the EU level, “says the MIT.
At the same time, the Czechia is considering acquiring a stake in one of the planned German LNG terminals, which would ensure the supply of liquefied natural gas from overseas. However, the terminal will be operational in three years at the earliest. “Increasing LNG supplies to Europe will further require the strengthening of the existing infrastructure, which is why we support both the interconnection of the gas network with Austria and Poland,” says the Ministry of Industry and Trade.
Our country is also well connected to Germany by the gas network. Gas from LNG terminals could be transferred to existing pipelines used by the Czechia in Germany, and no new infrastructure would have to be built.
What would gas disconnection look like in an emergency?
Disconnecting customers from gas supplies is the last step. However, if the situation reached a critical point, the Energy Act would be followed.
Deliveries would be limited according to the individual consumption stages, of which there are 10. In the first stage, deliveries would be limited to customers who have the option of replacing gas or electricity. Lastly, households and critical infrastructure, such as hospitals, would be disconnected.
The routes of the main gas pipelines in Europe
Will the Czechia pay for gas in rubles?
According to Bloomberg, ten European customers of Russian gas have opened an account in rubles. Four of them have already paid for the ruble in gas, as required by the Kremlin. However, according to the Minister of Industry and Trade Jozef Síkely, payments in rubles would be in conflict with the treaties, the same position is taken by other EU countries and the same position was emphasized by the head of the European Commission Ursula von der Leyen.
How will the current situation affect Poland and Bulgaria?
According to experts, the two countries to which Gazprom stopped supplying gas on Wednesday morning are relatively well prepared for the outage, so the move will not have a fatal impact on them. After all, Poland and Bulgaria did not plan to extend their contracts with Gazprom, which expire at the end of the year.
Both countries already have alternatives. “From October, a new gas pipeline will be put into operation, which can replace essentially the same amount of gas with supplies from Norway,” says Michal Kocůrek, gas analyst at EGÚ Brno.
Poland must mainly survive until the end of the year. “With increased imports of LNG and probably some reduction in consumption, the effects will not be as fatal as in the case of Germany or the Czech Republic,” says Gavor.
The situation is similar in Bulgaria, which is already purchasing LNG from Azerbaijan, and the effects on household consumption or critical infrastructure should not have a major impact on Russia’s move. “However, the production of electricity from gas or supplies to some industries may be limited,” Kocůrek points out.
Does the same fate await Poland as Bulgaria and other countries?
Both states could only be the beginning. Whether Gazprom decides to take the same step with other customers will depend on whether they are willing to pay for deliveries in rubles or through Gazprombank. The Kremlin has previously announced that it will not supply gas for free.
According to Kocurek, Gazprom sent a crucial message to other countries on Tuesday, which said that they would not pay for gas in rubles. “It is possible that Gazprom will apply this mechanism in other cases as well,” Kocůrek thinks. However, experts warn that not all countries are as well prepared for the end of Russian supplies as Poland and Bulgaria.
How will the termination of supplies to Europe affect Russia?
The abolition of natural gas supplies to Europe would mainly affect the Russian economy. Gas exports account for about six percent of Russia’s state budget, and oil accounts for 30 percent.
“The volumes that Russia supplies to Europe have nowhere else to supply. He no longer has such a customer and primarily lives from gas and oil exports, “Václav Bartuška, the Czech Republic’s special envoy for energy security issues, explained to SZ Business earlier.