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Ukraine tensions likely to put more pressure on Irish gas and energy prices, experts say

Sanctions on Russia – or an invasion of Ukraine – could interrupt gas supply to Europe.

Image: Shutterstock

THE POLITICAL TENSION between Russia and Ukraine could put more pressure on Irish gas and energy prices, experts and politicians have warned.

Russia is a major source of natural gas for the European Union, but if the situation in Ukraine escalates, that supply could be interrupted for several reaons.

The country might threaten to hold back the resource to use the EU’s dependence on it for gas to its advantage, or the EU may enforce stringent trade sanctions.

While Russia’s supply of gas to Ireland specifically is minor, a shortage elsewhere in the EU would likely push prices here upwards.

Asked whether the situation in Ukraine could impact Ireland’s gas prices, Tánaiste Leo Varadkar said, “It could, which I think is one of the reasons why we really need to see a de-escalation in tensions.”

Speaking on RTÉ Radio 1′s Today programme with Claire Byrne yesterday, the Minister for Enterprise said, “The gas that we use in Ireland comes about half from the Corrib gas field, which is our own gas, and most of the rest from the UK, Qatar and Norway.

“So we’re not reliant on Russian gas supplies at all. But if they were cut off, there would be a knock-on impact. Gas prices on the wholesale market would rise and rise further. And that’s a concern.”

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Ireland imports little or no natural gas directly from Russia.

Over 50% of Irish gas imports come from the United Kingdom through pipelines connected with the British gas system at Moffat in Scotland.

The UK directly imports less than about 5% of its natural gas from Russia, according to the British government.

But Britain is reliant on Europe for much of its natural gas imports — and Europe, in turn, is massively reliant on Russia.

In fact, between roughly 45% and 50% of total European natural gas imports (via pipelines and in the form of liquified natural gas) came from Russia in the first three quarters of last year, according to a recent report by the European Commission.

So if the supply of Russian gas to Europe is constrained for some reason, European importers will have to look towards alternative sources like Norway and Qatar to meet their needs, which will put upward pressure on prices.

If wholesale gas prices rise on the continent, they will also start moving upwards in Britain, which could have a knock-on effect in Ireland.

Gas-powered generators are Ireland’s largest source of electricity generation, representing about 50% of the total in 2020. Surging wholesale prices throughout 2021 translated into higher home electricity bills for Irish consumers, which more than doubled in the year to the end of December, according to the Central Statistics Office.

“I think people would have expected there to be a bit of relief after energy and gas prices seemed to peak in December and started coming back down,” Duncan O’Toole, Managing Director of electricity trading company Captured Carbon told The Journal.

“But now, we’d expect that any perceived supply issues are going increase the price again. That has consequences for everyone — from you and me to businesses; the whole of society.”

Screenshot 2022-01-26 at 16.21.24 Sources of gas supply for Europe in 2020, according to a UK report Source: Energy Trends

Professor John O’Brennan, the director of Maynooth University’s Centre for European and Eurasian Studies, said that Russia has “considerable leverage over European Union states” that depend on it for gas – “so right there, you have a bargaining chip that Putin can use.”

On how Europe’s energy supply could withstand various potential situations – Russia using its gas as a bargaining tool; EU sanctions; an invasion of Ukraine – O’Brennan said: “I think a lot depends on what moves the Russians actually make, what further incursions will they make in Ukraine and what kind of response that would be met with on the side of NATO and the NATO allies.”

“It’s not going to be cost free for Russia, that’s for sure. We’ve seen over the past 24 hours, I think, a real determination and a new kind of cohesiveness that wasn’t there a week ago on the part of NATO members,” he said, speaking to The Journal.

“I think they’re trying to spell out to Moscow that this will be different to 2014, that we’re going to see potentially crippling sanctions employed,” he said.

“These will be sanctions, I suspect, on really big Russian companies – banks, financial institutions, for example.”

He said sanctions could be “huge” for companies like Gazprom, Russia’s state-owned gas supplier and one of the largest public gas companies in the world.

“And so if the Russians do then try to use energy as a weapon, I think we’re probably going to see an escalation of that.”

He said that “each side thinks it has leverage of different kinds and we’ll just have to wait and see how it ensues”.

We’re in the middle of winter. There are a lot of countries that are very vulnerable here and that they will definitely need help from inside the European Union from their partner states, and potentially from the US as well.

The level of dependence on Russian energy differs throughout the EU.

Some countries, like Ireland, import gas from Norway and are less dependent on Russia, while France generates significant nuclear power.

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Germany – which has been hesitant to support Ukraine’s resistance to Russia – is more dependent on gas supplies, in part because of a decision to phase out nuclear power.

And there are counties, such as Bulgaria, that are almost entirely dependent on Russian energy, particularly in winter.

That high level of dependence is “to the advantage of Moscow”, Professor O’Brennan said.

“However, I think there are two things that kind of push against that. The first is that the United States has said over the last 24 hours that it’s prepared to help those European countries that may suffer if the Russians decide to use energy as a weapon in this dispute with NATO and Ukraine,” O’Brennan said.

“Now, we don’t know what form yet that might take, but it’s something that wasn’t there a week ago and I think it is important,” he said.

“The second thing is that it’s not entirely true to say that the European Union hasn’t done anything about its energy dependence on Russia. If we look back over the last 15 years, there have been concerted efforts made, and particularly through the use of energy connectors, whereby energy can be transported from one European Union state to another.

“That’s something that largely didn’t exist back then but is there now and it’s another safety mechanism, in a sense, that might well be used in the next couple of months.

“However, the overall sort of situation is, I think, still very unsatisfactory for the European Union.”

About the author:

Ian Curran and Lauren Boland

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