Europe’s Energy Crisis: Did Putin’s Suggestion for More Gas Make a Difference?

Three months after Vladimir Putin suggested that Russia could help ease Europe’s energy crisis, experts say not much has changed.

As winter grips Europe, the continent’s low gas reserves and supply problems have sent the cost of energy skyrocketing.

While there have been some increases in the supply of natural gas from the United States, “we are seeing a continuing deficit in what we would normally expect in terms of supplying Russian pipelines to Europe,” said Jack Sharples, Oxford Institute for Energy Researcher. Studies, who is also an expert on Russia and Gazprom.

Putin had suggested in October that Russian state supplier Gazprom sell more on the European spot market, an announcement that appeared to ease sky-high prices.

But even after Russia filled up its internal storage in November, there was little change on the European side.

“If you look at the numbers, you see only a little activity from Gazprom, but really very limited and nothing close to what it will take to get back, say, to historical levels of Russian pipeline supplies,” said Dennis Hesseling, head of the department. infrastructure, gas and retail trade of the EU Agency for the Cooperation of Energy Regulators.

The European Commission said Thursday that it was investigating Gazprom’s behavior, as some analysts expressed concern that Russia’s actions could be aimed at pressuring Europe to give the green light to the new Nord Stream 2 pipeline.

Putin said in late December that Nord Stream 2 could help lower gas prices, adding that Gazprom had increased its gas exports. But others have said temperatures are also low in Russia, creating potential supply problems.

“In fact, it is encouraging that a company, in view of the increase in demand, limits the supply. That’s pretty weird behavior in a market, ”Europe’s competition commissioner Margrethe Vestager said on Thursday when asked about Gazprom.

His comments came after the head of the International Energy Agency (IEA) issued his strongest criticism yet of Russia, stating that it was probably part of the reason for the high gas prices in Europe.

“We see strong elements of ‘artificial tightness’ in European gas markets, which appears to be due to the behavior of Russia’s state-controlled gas supplier,” IEA Executive Director Fatih Birol said in a statement published in social networks.

“Unlike other pipeline providers such as Algeria, Azerbaijan and Norway, Russia has reduced its exports to Europe by 25% in the fourth quarter of 2021 compared to the same period in 2020, and by 22% compared to their 2019 levels ”.

Birol added that the IEA estimates “that Russia could increase deliveries to Europe by at least a third, or more than 3 billion cubic meters per month” or about 10% of the average monthly gas consumption in Europe.

Experts say it is a contributing factor to a natural gas crisis that, so far, is inflexible.

“The prices are very high at the moment. Even after the winter is over, so after March, contracts that are signed at this time for future delivery still have a high price point, ”Hesseling said.

Doug Wood, chairman of the gas committee of the European Federation of Energy Traders, said there are still supplies of liquefied natural gas around the world.

“We still see some opportunities to increase production and there are ongoing talks with the main producing countries. So we are not in an emergency situation yet. The market is still working. There is still some liquidity. The prices are simply high.” He said. .

Low European gas storage

One of the current problems is that gas storage in Europe is at its lowest level in seven years, Hesseling says.

The level of gas storage is around 49% compared to around 65% in the same period last year, according to Gas Infrastructure Europe.

“There are concerns about storage recalls because, of course, storage is needed to ensure that sufficient gas is available throughout Europe throughout the winter period and, especially in the latter part of winter, sufficient stored supplies are still needed to remove it. properly, ”Hesseling said.

“And technically speaking, the moment its storage level gets too low, the ability to deliver gas actually becomes less effective, so it can be less easily removed from gas storages.”

Sharples of the Oxford Institute for Energy Studies says the main problem is that if there is a cold snap this winter, Europe could extract much more gas from storage, causing problems later on.

“The EU plus the UK currently have around 52 bcm (one billion cubic meters of natural gas) in storage and on the average of the last five years between mid-January and… on March 31, the five-year average is approximately 33 bcm out of storage in that period, ”said Sharples.

But if there is a particularly cold period that causes an increase in demand also in East Asia, Europe could be almost empty at the end of winter.

This would affect natural gas prices during the summer and also during the coming winter, as European countries work to recharge storage.

“I think if we have a cold in the next few months and we can take a lot out of storage, then the need to replenish that will keep prices relatively high over the summer,” Sharples said.

Is investment in renewables key?

A cold snap last winter was one of many reasons for the current crisis Europe is in, experts say. The pandemic was another main factor, impacting on the maintenance of natural gas fields and other problems on the supply side.

This, in addition to the phasing out of coal and low renewable energy production, has led to increased demand for natural gas in Europe and Asia.

Natural gas also has an impact on electricity markets that use it as a marginal fuel, a crisis that has been “exacerbated by below-average hydroelectric power production and lower nuclear production,” the IEA chief said. , Birol.

He says that further investment in renewables must happen quickly “or global energy markets will face a turbulent and volatile period ahead.”

Doug Wood said part of the problem is that there is still a challenge with seasonal electricity supplies, as renewables currently cannot provide oscillating capacity during the winter months.

“That is part of where we are at the moment when many people see that gas has a very important role to play in that transition, which is affecting the demand for gas, not only now as a facilitator of the introduction of renewable energy. And this is going to continue for much longer,” Wood said.