Why some see Russia’s hand in the gas price crisis in Europe

Natural Gas Updates

Russia’s position as a reliable gas supplier to Europe is at stake.

Record prices in the UK and mainland Europe have drawn attention to declining natural gas supplies from Russia this summer, leaving many wondering whether a silent market tightening has been executed by Moscow.

The goal, according to the theory, would be to push prices up to a level where Germany is rushing over approval of the politically controversial Nord Stream 2 pipeline, the construction of which – now completed – has been beset by US sanctions. and opposition from eastern countries. Europe.

40 Members of the European Parliament, mostly from Poland and the Baltic states, on Friday called for an investigation into Gazprom, the Russian state-backed monopoly pipeline exporter. They want an investigation into whether Gazprom’s actions are the cause of the price spike that now threatens a wider disruption to European industry.

Gazprom and its supporters say it is overkill. They point out that Gazprom has honored all of its long-term supply contracts. No tap was turned off. Some countries in Europe, including Germany, even received more supplies from Russia this year than last year.

They argue that it is Russophobia to blame Gazprom for what is becoming a global problem, with gas prices in Asia also rising as more countries attempt to replace at least part of the coal in their energy mix with carbon. cleaner burning natural gas. European domestic gas production also fell sharply.

But Gazprom’s critics counter that it only takes a small swing in the balance of supply and demand in commodity markets for prices to rise or fall. Key to their argument is that supplies to northwestern Europe from Russia have, on average, been weaker this year than before the pandemic.

In addition, Gazprom has repeatedly refused to auction off any additional gas supply in the spot market via pipelines crossing Ukraine, that Nord Stream 2 – going directly from Russia to Germany via the Baltic Sea – is largely designed to supplant.

After a prolonged winter in 2020-21, gas storage in Europe was drained to below normal levels, so the demand for supply from the spot market to reload inventory was higher. But Europe’s largest supplier refused to make this additional gas available.

As winter approaches, storage levels in Europe are now well below normal levels for the time of year, which has become the main driver of the price spike. There are real fears that in the event of a prolonged or particularly cold winter, the market could run out of gas.

Gazprom’s public statements have muddied the waters. The company acknowledged that it was filling national storage at a higher rate than in previous years, suggesting there may be less gas available to send.

But Alexei Miller, the boss of Gazprom, said on Friday the company was able to increase gas production and provide additional supply if needed.

A spokesperson for Russian President Vladimir Putin also said this week that starting Nord Stream 2 would make more gas available, including in the spot market.

Putin himself has stoked the situation, saying the European Commission’s “smart alecs” were at least in part to blame, pushing for “market-based” pricing as part of efforts to increase competition in gas supply.

But if Gazprom is happy to sell for cash once Nord Stream 2 is up and running, despite its preference for long-term contracts, are people wondering why they won’t do it now?

Critics say the strongest evidence that Gazprom is playing a dangerous game with the market can be found in data on European storage. Although total storage is below normal, European energy companies have been generally successful in restocking the stocks of the facilities they control to a reasonable level. Most of the storages in Europe that have not been filled are in fact checked by Gazprom itself.

By leaving its own storage facilities in Europe at very low levels, Gazprom is effectively refusing to obtain supplies and is signaling to the industry that the market will be tight. Such actions can scare the market even if Gazprom supplies its customers in the long term.

If Gazprom started filling its Europe-based storage now, prices are likely to stabilize or decline. But as winter approaches, it is not yet known whether Russian gas will arrive with it.

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About Leni Loberns

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