Home » Europe Gas Prices: What is Russia’s Responsibility?

Europe Gas Prices: What is Russia’s Responsibility?

by Lester Blair
Gas metering station at Berehove in Ukraine
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In Europe, gas prices are on the rise and Russia is being accused of trying to profit from it.

Jake Sullivan (the US National Security Advisor) expressed concerns that Russia could be using energy to make political points.

“I believe that they [Russia]He stated that the government should be responsive to market demand for more energy supply to Europe.

How far can Russia be held responsible for the current price rises and shortages?

Russia is the largest supplier of natural gas in Europe, accounting for approximately 50%. Norway and Algeria supply most of Europe’s natural gas.

Russia exports gas to Europe using several pipelines, such as the Nord Stream or Yamal Europe.

Regional storage hubs collect the gas and distribute it to various countries on the continent.

Due to lower demand during the pandemic gas exports from Russia fell overall.

Even though it is up in Europe again, the downward trend has continued – with lower supply this yea, particularly via the Ukraine/Bela pipelines.

The result is that stocks in Europe have been depleted which has driven up the prices.

Gazprom (Russia’s state-owned majority energy company) supplies gas to Europe in two ways:

  • Contracts lasting for a long time often last between 10 and 25 years
  • For a set amount of gas, you can make a “Spot” deal or a one-off purchase

Gazprom describes long-term agreements as essential to secure and sustained gas supply.

It is believed that the company has fulfilled its contractual obligations to European buyers for this year.

Fatih Birol (executive director of the International Energy Agency) recently stated that Russia could provide 15% more gas, if it so desired.

Some analysts believe Russia may be holding back supplies so that approval can be given for Nord Stream 2, a direct route from Russia to Germany.

This is a bypass for Ukraine. It has drawn objections from geopolitical and environment grounds. Russia, however, wants it to continue.

Jack Sharples of the Oxford Institute for Energy Studies says, “The majority of mainstream European media have attributed this to Gazprom deliberately withholding supplies to force Germany’s regulator and European Commission into approving Nord Stream 2.”

However, he states that such an analysis is “questionable”.

Angela Merkel, German Chancellor, stated she wasn’t aware of any cases where Russia hadn’t fulfilled its contractual obligations.

She was quoted saying that Russia can only supply gas to the extent of its contractual obligations, and not like this.

It is important to note that spot sales are not occurring in significant numbers, according to data from Gazprom’s electronic sales platform.

Dr Sharples said: “This suggests that Gazprom provides the volumes… under long-term contracts, but not additional volumes above those contracts.”

Kadri Simonson, EU’s Energy Commissar, also agreed with this sentiment.

“Our initial assessment indicates that Russia has fulfilled its long-term obligations and is not providing additional supplies. On 6 October, she spoke out to the MEPs.

Sergey Ryabkov was Russia’s deputy foreign Minister. He stated to the BBC, “Gazprom actually started pumping out its reserves into pipelines for stabilization of the market.”

He added that “We’ve never been in a place to put pressure on our energy resources.”

Gas storage in Europe has fallen to 75% below its 10-year average according Gas Infrastructure Europe data.

Although the UK has full gas storage, Russia supplies only about 5% of its usage. The UK is therefore less dependent on Russian imports that other European countries.

Russia has also reduced its own storage of gas.

Adeline van Houtte (Europe analyst, Economist’s Intelligence Unit) says, “Currently the Russian domestic market remains tight with production already at its peak, winter is looming… restricting gas export capacity.”

Other factors can also affect the European situation, like:

  • Stocks will be depleted by cold temperatures at the beginning of 2021
  • Spring and summer’s rising prices have discouraged traders from selling earlier in the year.
  • Norway has a limited supply due to maintenance problems
  • Reduced use of other energy sources like wind power
  • Gas demand is growing all around the world

In the aftermath of the coronavirus epidemic, factories have seen a rebound and are now producing more. This has pushed up energy demand.

Europe also faces increasing competition from gas imports from the rest of the world.

The demand for gas has increased in certain regions, such as Asia and the Middle East over recent years.

The market for liquid natural gas (LNG) is affected by this. LNG makes up around 25% of Europe’s imports.

In order to meet rising LNG demand, LNG supplies are diverted to Asia.

Russia is also expanding gas exports to China and has inaugurated in June a gas processing facility in its far eastern region. This plant will be one of the largest in the world.

Kumar Malhotra, Daniele Palumbo and additional reporting

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Source: BBC.com

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