Europe’s energy crisis: Did Putin’s suggestion of more gas make any difference?

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Three months after Vladimir Putin suggested that Russia could help to 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 seen the cost of energy soar.

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

Putin had suggested back in October that Russian state-controlled 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 domestic storage in November, there was little change on the European side.

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

The European Commission said on Thursday that they were looking into Gazprom’s behaviour as some analysts raise concerns that Russia’s actions could be aimed at putting pressure on Europe to green-light the new Nord Stream 2 pipeline.

Putin said in late December that Nord Stream 2 could help to ease gas prices while adding that Gazprom had increased its gas exports. But others have said that temperatures are low in Russia as well, leading to potential supply issues.

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“It is indeed thought-provoking that a company in view of increasing demand, limits supply. That is quite rare behaviour in a marketplace,” said Europe’s competition commissioner Margrethe Vestager on Thursday when asked about Gazprom.

Her comments came after the International Energy Agency (IEA) chief issued his strongest criticism yet of Russia, stating that it was likely 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 behaviour of Russia’s state-controlled gas supplier,” IEA executive director Fatih Birol said in a statement posted on social media.

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

Birol added that the IEA estimates “that Russia could increase deliveries to Europe by at least one-third, or over 3 billion cubic metres per month” or around 10% of Europe’s average monthly gas consumption.

Experts say it’s one contributing factor to a natural gas crisis that is, so far, unyielding.

“Prices are very high at the moment. Even after the winter is over, so after March, the contracts being signed at this moment for delivery in the future, are still at high price level,” said Hesseling.

Doug Wood, the gas committee chair at the European Federation of Energy Traders said there are still supplies of liquified natural gas globally.

“We still see some opportunities for increased production and there are ongoing discussions with major producer countries. So we’re not at an emergency situation yet. The market is still functioning. There’s still some liquidity. Just, prices are high,” he said.

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Low European gas storage

One of the current problems is that European gas storage is at a seven-year low, Hesseling says.

The gas storage level is at around 49% compared to roughly 65% at the same time last year, according to Gas Infrastructure Europe.

“There are concerns about the storage withdrawals because of course, storage is needed to make sure that there’s enough gas available throughout Europe through the whole winter period and especially in the last part of the winter, you still need sufficient supplies in storage to withdraw it properly,” said Hesseling.

“And technically speaking, the moment your storage level becomes too low, the capacity to deliver gas actually becomes less effective so you can withdraw less easily from the gas storages.”

Sharples at the Oxford Institute of Energy Studies says the main problem is that if there’s a cold spell this winter, Europe could draw much more gas from storage, causing problems further down the line.

“The EU plus the UK currently has around 52 bcm (billion cubic metres of natural gas) in storage and in the average of the last five years between mid-January and…the 31st of March, the five-year average is to take about 33 bcm out of storage in that period,” Sharples said.

But if there is a particularly cold period that causes demand to increase in East Asia as well, Europe could come close to empty by the end of winter.

This would impact natural gas prices over the summer and into next winter as well, as European countries work to refill storage.

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“I think if we have a cold next couple of months and we can draw lots out of storage, then the need to replenish that is going to keep prices relatively high through the summer,” Sharples said.

Is investment in renewables key?

A cold spell last winter was one of a multitude of reasons for the current crisis Europe finds itself in, experts say. The pandemic was another main factor, having an impact 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 caused natural gas demand across Europe and Asia to rise.

Natural gas also has an impact on electricity markets which use it as a marginal fuel, a crisis that has been “exacerbated by lower than average hydropower output and lower nuclear output”, IEA chief Birol said.

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

Doug Wood said that part of the problem is that there’s still a challenge with seasonal supplies of electricity, with renewables currently unable to provide swing capacity during the winter months.

“That’s part of where we are at the moment that a lot of people see that gas has a very important part to play in that transition, which is impacting demand for gas, not just now as a facilitator of renewables introduction. And this is going to continue for a lot longer,” Wood said.


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