Friday, January 28

The rise in gas prices in Europe: does Russia have a solution to the crisis? | Gas


The natural gas market has entered uncharted territory. The gas price movements on Wednesday had been, in the words of one analyst, “unprecedented since the year of gas liberalization in Europe.” In record swings, Dutch wholesale gas, a European benchmark, soared 30% in a three- to four-hour period from an already dazzling level.

These are chilling numbers for European governments with winter ahead, and when the EU sneezes, the UK, which relies heavily on imports from the other side of the Channel, also catches a cold.

The shortage was caused by a confluence of events around the world, as economies emerged hungry for power after the pandemic slowed. At the center of the storm is Russia. While supplying only 1% of UK gas, Russia is Europe’s largest supplier, accounting for about 40% of all EU gas. And a contraction in European gas volumes leads to price hikes in the UK and beyond.

There is no doubt that Russia did not deliver such a high volume of gas to northwest Europe this summer compared to the years before the Covid.

chart gas supply to UK

From September to October, Northwest European volumes fell about 17%, according to Tom Marzec-Manser, Europe’s leading gas analyst at ICIS LNG Analytics.

The fact that Russia’s Gazprom also has not reserved additional gas transit capacity through Ukraine to European destinations for October has led some to accuse the Kremlin of manipulating a crisis.

“While Russia has been technically meeting its contractual obligations to the West, it has not been interested in capitalizing on high demand to ship additional gas to its European customers. It is the only country that could really ease the pressure on prices and has decided not to, “said Maria Shagina, a postdoctoral fellow at the University of Zurich who focuses on energy policy.

The Kremlin has always sought to present itself as a reliable gas supplier to the West. However, recent developments could spell a new phase in its foreign policy, as some analysts believe the Kremlin sees record gas prices as an opportunity for Gazprom to pressure its Western partners to speed up the approval of the controversial Nord gas pipeline. Stream 2.

Nord Stream 2, deemed vital by the Kremlin, is expected to double Russia’s natural gas supply to Germany, but it has divided European nations and sparked friction between the bloc and the United States. The pipeline will bypass Ukraine, costing the country an estimated 1 billion euros (£ 0.85 billion) in transit.

“Russia will feel in a position of power and will try to use its gas supplies as a lever to speed up the final approval of Nord Stream 2,” Shagina said. “Russia has not used its gas as a weapon with Western Europe before.”

Fatih Birol, executive director of the International Energy Agency, said on Wednesday that Russia has the capacity to alleviate the energy crisis, “if they wish to do so.” the agency analysis suggests it has the ability to increase supplies to Europe by up to 15%.

Serbian President Aleksandar Vučić described Vladimir Putin as a “kingmaker” in the energy market, but Kremlin spokesman Dmitry Peskov has denied the conspiracy allegations, pointing to Russia’s own internal needs in winter after from a cold first quarter of the year. .

Notably, German Chancellor Angela Merkel has also echoed the denial. And while Wednesday saw record spikes, what followed later in the day, according to some analysts, points to any suggestion of omnipotence by Vladimir Putin as greatly exaggerated.

“Let’s think about a possible increase in the supply in the market, we just have to do it carefully. Come to an agreement with Gazprom and talk about it, ”Putin said, in comments that immediately saw a significant pullback in price rises from earlier in the day, even pushing prices lower than the day before.

On Wednesday afternoon there was a significant increase in Russia’s gas supply through Poland and Ukraine. “The flows were higher than the day before, there was an immediate radical change,” said Marzec-Manser. There is, he added, “a certain belief that there may be more of that in the days and weeks [to come]”.

Gazprom’s domestic gas storage capacity is due to reach a target of 72.6 billion cubic meters by early November. From then on, Russia should have more gas available for export.

Most analysts do not see any significant profit coming from Nord Stream 2 this year, even if approval is secured, given that it is likely to operate at 10% capacity.

If salvation is near, it will be clearer on October 18, the date when capacity in Ukraine and Poland will have to be reserved for November.

Jacob Kirkegaard, a senior member of the German Marshall Fund, said events illustrate that Putin was not acting from a position of strength, but of weakness. “You need to sell,” Kirkegaard said. “Yes, it may be playing in the European gas markets, but it is also responding to its own weakness … It has no interest in forcing accelerated decarbonisation in Europe.”


www.theguardian.com

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