Taps Coogan – February 26, 2022

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We have written numerous times about Russia’s decision to suspend spot auctions of natural gas and reduce its exports to Germany via the Yamal pipeline while leaving its EU based storage sites empty. Since mid December, no natural gas had flowed to Germany via this pipeline, one of the three main pipelines into the EU.

A power play aimed at securing Nord Stream 2 approval – a pipeline whose only evident purpose is to reroute gas flows away from Ukraine (the EU already has excess natural gas import capacity), Russia’s urgency to start up Nord Stream 2 takes on renewed clarity now that Russian tanks roll down Ukrainian streets.

Of course, with Nord Stream 2 approval now likely dead and much of Russia’s external sources of cash about to dry up, the Russians are turning on the taps to Germany once again in what looks like a cash grab while they can still get it, as the following chart from Javier Blas highlights.

Now would be a great time for Germany to grow a backbone and restart the nuclear plants it shut down on misguided environmental grounds a few months ago and not shut down its remaining plants later this year. Don’t hold your breath.

70% of Russian gas exports go to Europe. Also remember that the US is now exporting more natural gas to the EU than Russia is, admittedly because Russian flows had been halved since December.

Despite all the fear mongering about energy supplies, the EU can wean itself off Russian gas. Build a few more LNG import terminals, restart its prematurely shuttered nuclear plants, build more wind and solar capacity, speed up the the TAP pipeline expansion, and, if need be, lean on coal for a couple years while executing the aforementioned steps, and the EU could cut Russian imports to basically zero.

Russia is going to need the EU’s cash more than the other way around as Putin’s bewilderingly foolhardy and tragic invasion of Ukraine starts going off the rails (graphic), and based on the chart above, they know it.