Gas shut down would be self-destructive to Russia’s producers, Trend reports with reference to Fitch Solutions.
“The EU is Russia’s largest gas consumer and there are no other customers that could readily replace their demand. Russia has not yet built the infrastructure to redirect gas produced in Western Siberia for European markets to other large consumers in Asia, with Power Of Siberia 2 unlikely to be ready before 2024. In effect, if Russia was not to sell gas to Europe, it would be forced to pump gas into domestic storage facilities as a short-term solution and then shut-in vast volumes of gas production,” the company said.
Gazprom’s domestic storage capacity is stated at 72bcm, of which around 80 percent is used in the winter, leaving approximately 60bcm of storage capacity at this time of year.
“If Russia were to completely shut off gas flows to Europe, representing around 150bcm of gas per annum, and redirect it to domestic storage, the facilities would be full in three to four months, forcing gas production thereafter to be shut-in, potentially damaging long-term growth. Looking to the short-term, we are not expecting European buyers to pay in roubles, so what occurs next depends on whether Russia shuts off gas supplies in response. We do not expect Russia to shut off gas supplies, as it would be a major escalation from its previous position that this would be a response to an oil embargo. If Russia were to shut off gas supplies, it would mark a serious step-change from Russia’s deference to long-term contracts as the model for gas supply agreements. Putin and other government officials have continuously stressed their preferred form of gas trade as long-term contracts with Gazprom and that existing contracts would be respected, to maintain its reputation as a reliable gas supplier. We expect Russia to continue to accept EUR as payment for gas supplies covered by long-term contracts, but perhaps demand roubles for purchases of any additional volumes. This poses an easy route for de-escalation whilst saving face by Putin and is more aligned with the deference shown for long-term contracts historically by Russia,” reads the latest report released by Fitch Solutions.