What is Russia’s role in Europe’s natural gas crisis?

October 12, 2021 9News Nigeria Europe 0

When Vladimir Putin indicated last week that Russia could be ready to ease Europe’s energy crisis, the markets breathed a sigh of relief.

Prices for natural gas had been soaring earlier that day, part of a pattern over recent months as increased demand — sparked by economies opening up after COVID lockdowns — combined with lower stocks in Europe following last year’s long winter.

Russia is the largest gas supplier to the European Union, which is increasingly dependent on natural gas imports, and it has the power to make a difference.

But there is no evidence that Russia has increased gas supplies since Putin’s speech, nor for that matter, before.

Russia says it has fulfilled its long-term contracts but experts have questioned why the country hasn’t taken advantage of the prices to trade more on the European market.

“The deliveries from Gazprom, which has a monopoly on pipeline exports of Russian gas to Europe, are at the regular rate. They have, as far as we know, followed all the contractual commitments,” Dennis Hesseling, head of the infrastructure, gas, and retail department at the EU Agency for the Cooperation of Energy Regulators, told Euronews last week.

He said that normally gas exporters make more gas available to dampen rising prices.

“You would expect parties to react to price signals. In the past, we saw Gazprom reacting to opportunities in the European market. That’s not happening now, and we don’t know why that is not the case.”

Some European politicians and experts are concerned that Russia is attempting to pressure regulators to approve the newly completed Nord Stream 2 pipeline; other experts argue that Russia doesn’t have spare gas and is trying to fill up its own storage ahead of winter.

Natural gas is the main energy source for heating homes in the EU and is thus subject to much higher demand in the winter.

At the moment, natural gas storage in Europe is low at around 76%, according to Gas Infrastructure Europe. This time last year, it was at around 95% full.

Putin maintained last week that Russia is a “reliable supplier” to Europe that “fulfils all its obligations in full,” according to a Kremlin translation of his speech, but suggested that Russia could send some additional gas to Europe.

His spokesman Dmitry Petrov also told reporters there was “potential” for existing gas pipelines to supply more natural gas to the EU, the AP reported.

Jack Sharples, a research fellow at the Oxford Institute of Energy Studies, who is also an expert on Russia and Gazprom, said Putin’s influence on the market showed “this is a very jumpy market”.

“In addition to the supply and demand fundamentals, we’re probably seeing a fair amount of speculation. This is visible in the fact that price movements [at the end of last week] have been far out of proportion to the fluctuations in physical gas flows coming into Europe.”

Simone Tagliapietra, a senior fellow at Bruegel, argues that it is “now pretty evident” that Russia is involved in the crisis: “They want to show that gas is important, that Russian gas is important for Europe.”

“Now, they might also contribute to end this crisis and to demonstrate they are a reliable supplier. Otherwise, they would just damage further the image of gas and the role of gas in the European energy mix as being perceived as unreliable fuel,” he added.

The gas crisis could still put pressure on the German regulator and European Commission to approve the controversial Nord Stream 2 pipeline, which would pump 55 billion cubic metres of natural gas per year into the bloc.

The Kremlin has insisted the pipeline’s launch would help ease the European gas crisis.

European parliamentarians first raised the concern that Russia was withholding gas to encourage the opening of the controversial pipeline in mid-September, demanding an investigation into potential market manipulation.

“I know that some of you are concerned about possible manipulation of the EU energy market and these are serious concerns,” said EU energy commissioner Kadri Simson at a parliament plenary session on Wednesday.

“We are looking into this claim, through our competition angles. Our initial assessment indicates that Russia has been fulfilling its long-term contracts, while not providing any additional supply.”

European Commission President Ursula von der Leyen added on Wednesday that “Norway, one of our suppliers, is now stepping up and increasing the supply and I think this is a very good example that others could follow.”

The International Energy Agency (IEA) said in a statement two weeks ago that it believed “Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season.”

IEA executive director Fatih Birol reiterated that point on Thursday to the Financial Times, stating that Russia could increase their exports by 15 per cent of what they send during the winter season.

But Russia is not obliged to give more gas to the European market, which is, effectively, Sharples says, a “market of last resort” where they will likely find a buyer.

While Russian supply through existing pipelines has been lower this year, especially through Ukraine and Belarus, this could also be due to problems meeting all the demand as well.

“According to the numbers that Gazprom has been publishing over the last few quarters, it seems that they are not far off their full productive capacity,” Sharples said.

“What might actually be a bit of an uncomfortable truth for Gazprom is that they have found it very challenging to simultaneously meet their domestic demand, replenish their own storage facilities, and meet their export commitments to Europe,” he added.

Angela Merkel, meanwhile, said that Russia could only deliver on the basis of “contractual commitments,” asking whether there had been enough gas orders to the country.

Europe’s largest energy companies confirmed to Reuters that Gazprom had fulfilled its contracts as well.

Sharples said we might not know for sure why Russia hasn’t taken advantage of the high European prices yet.

“The only way that we will know that for sure is if we see that they suddenly pull some spare gas out of their back pocket that we didn’t know they had as soon as the Nord Stream 2 commercial operation is approved,” he said.

“Conversely, if when Nord Stream 2 is approved and launched, we suddenly see gas transit via Ukraine drop to very low levels, that could be an indicator that Gazprom really don’t have anything spare and that actually the purpose of Nord Stream 2 is to simply displace Ukraine.”

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