THE night shift at Agropolychim, Bulgaria’s biggest fertiliser plant, received a fax at 4.30am on January 6, 2009 warning that their gas supply was going to be cut off immediately. The engineers demanded four more hours: an instant shutdown would leave a cocktail of explosive chemicals to congeal in the plant’s pipes, destroying vital equipment. “It was all hands on deck,” recalls Philippe Rombaut, Agropolychim’s chief executive.

Bulgaria was one of the countries hardest hit when Russia cut the gas supply to Europe during that biting winter. Electric heaters sold out within hours. People in many parts of the Balkans had to go back to burning wood. In Sofia, the zoo’s shivering African monkeys were kept alive with buckets of herbal tea mixed with lemon and honey.

Today, Bulgaria is once again seen as extremely vulnerable if political tensions over Ukraine trigger an energy crunch this winter.

Scars from Russia’s gas cuts in 2006 and 2009 run deep across eastern Europe and, at first glance, the continent appears to be in danger again this year thanks to a seemingly unshakeable dependence on Gazprom, Mos­cow’s gas export monopoly. Europe’s imports from Russia rose 16pc last year to hit a record high. Overall, Gazprom supplies 30pc of Europe’s gas but, in many eastern states, the reliance is closer to 100 per cent.


Political tensions and high Russian gas prices are driving profound shifts in fuel usage


Half of Europe’s imports from Russia flow through Ukraine and that supply is always a potential hostage to politics. In June, Gazprom stopped gas sales to Kiev in a pricing dispute, raising fears that Ukraine will be forced to siphon off the EU’s transit gas if supplies are not resumed by winter. Moscow is also tightening the noose around Kiev by preventing EU countries from re-exporting Russian gas as a lifeline to Ukraine in so-called ‘reverse flows’.

Hopes are rising among diplomats that the EU, Russia and Ukraine will strike an agreement on resuming gas supplies to Kiev in negotiations in Berlin next week. But even if there is a deal, most eastern European governments can hardly relax. “Our baseline scenario is no transit gas through Ukra­ine,” says Vaclav Bartuska, the Czech government’s energy ambassador.

The EU’s first line of defence lies in far higher gas reserves than those in 2009 and countries have been stockpiling heavily since spring. The stocks are now 93pc full, giving most states a cushion of several weeks, or more, if Russia were to cut supplies.

Since the previous crisis, Hungary has expanded underground storage facilities to 6.2bn cubic metres to meet annual consumption of 10.2bcm. They currently hold 4.2bcm. The Czech Republic has filled its stores with 3.3bcm, a comfortable margin for a country with annual consumption of 7.5bcm.

With oil prices sinking beneath $90 a barrel, the EU is increasingly confident that Moscow’s treasury does not want any cut in gas sales nor risk more European customers making a generational shift away from gas to other fuels. “They realise that they would also get into trouble,” says Karel De Gucht, the outgoing EU trade commissioner. “Russia also has an interest that they are seen as a reliable supplier”.

But it may be too late for the Russians to stop the gradual but profound shift away from Gazprom that is under way. Mr Rombaut’s plans at Agropolychim show that Moscow does not hold all the cards. Next year, he will switch from gas to biomass, running on straw and woodchips. That is highly significant for Gazprom because Agropolychim and Neochim, Bulgaria’s leading fertiliser plants, jointly consume about 25pc of the country’s gas.

The story is similar in Poland, where Grupa Azoty, the country’s biggest gas consumer, is seeking to break its dependence on Russia. Grupa Azoty, also a fertiliser group, consumes 15pc of Poland’s annual gas imports but has vowed that half the 2.3bcm will come from non-Russian sources by 2016. “I strongly believe that we will be able to get there,” says Pawel Jarczewski, chief executive officer.

Mr Jarczewski’s confidence is partly based on deep structural changes in the EU, loosely referred to as the ‘energy union’. EU countries are building core infrastructure - such as import terminals for liquefied natural gas and cross-border pipelines - to break the stranglehold of Russian supply routes. However, progress has been agonisingly slow. Fitch, a rating agency, does not expect Europe to lessen its reliance on Russia ‘for at least the next decade and potentially much longer’.

Major western EU nations are at less risk because they already have greater diversity of supply and big LNG ports, procuring gas from Norway, Algeria and further afield. Germany has the direct Nord Stream pipeline from Russia that is considered unlikely to be caught up in a spat because it does not pass through Ukraine.

The western nation viewed as most vulnerable is Italy, which would be in trouble if it suffered simultaneous disruptions from Russia and Libya.

Grupa Azoty is likely to benefit from an LNG terminal at Swinoujscie on Poland’s Baltic coast, due to open next year. The Baltic will also be served by a terminal at Klaipeda in Lithuania, also beginning operations in 2015.

“A pipeline connecting the terminal and [Azoty subsidiary] Zaklady Chemiczne Police will allow us to benefit from additional flows of non-Russian gas from the Gulf or US shale gas,” says Mr Jarczewski. The US is debating whether it will send supplies to Poland, which will not happen unless Washington lifts restrictions on gas exports.

Agropolychim and Grupa Azoty say they are diversifying away from Russia as much because of Gazprom’s high prices as security of supply.

Published in Dawn, Economic & Business, October 20th, 2014

Opinion

Editorial

Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...
New terror wave
Updated 27 Mar, 2024

New terror wave

The time has come for decisive government action against militancy.
Development costs
27 Mar, 2024

Development costs

A HEFTY escalation of 30pc in the cost of ongoing federal development schemes is one of the many decisions where the...
Aitchison controversy
Updated 27 Mar, 2024

Aitchison controversy

It is hoped that higher authorities realise that politics and nepotism have no place in schools.