KHANTY-MANSI AUTONOMOUS AREA - YUGRA, RUSSIA – APRIL 5, 2020: A worker turns a pipeline valve on the Yuzhno-Surgutskoye oil field developed by RN-Yuganskneftegaz, 20km away from Nefteyugansk in the Khanty-Mansi Autonomous Area - Yugra; RN-Yuganskneftegaz is the largest oil production enterprise of Rosneft and the second-largest one in Russia with an annual output of about 220m barrels. Alexei Andronov/TASS Ðîññèÿ. Õàíòû-Ìàíñèéñêèé ÀÎ. Èëëþñòðàöèÿ. Äîáû÷à íåôòè íà Þæíî-Ñóðãóòñêîì ìåñòîðîæäåíèè ÎÎÎ "ÐÍ-Þãàíñêíåôòåãàç" â 20 êì îò Íåôòåþãàíñêà. ÎÎÎ "ÐÍ-Þãàíñêíåôòåãàç" - ñàìîå êðóïíîå íåôòåäîáûâàþùåå ïðåäïðèÿòèå ÏÀÎ "Ðîñíåôòü" è âòîðîå ïî âåëè÷èíå â Ðîññèè, ãîäîâîé îáúåì äîáû÷è, íåôòè êîòîðîãî ñîñòàâëÿåò ïðèìåðíî 220 ìëí. áàððåëåé, èëè 61% îáùåé íåôòåäîáû÷è êîìïàíèè. Àëåêñåé Àíäðîíîâ/ÒÀÑÑ

Russia’s Role in Europe’s Gas Crisis

Natural gas prices have spiked worldwide, with price surges most acutely felt in Europe. There are few short-term solutions to the problem, but recent gas flows from Russia have resulted in huge moves in the market, highlighting the enormous sway that Russia has over the gas market at the moment.
Russia is not the cause of extreme volatility and high prices, but that has not stopped age-old concerns about the geopolitics of gas from resurfacing.
Natural gas price spike
The trebling of natural gas prices in Europe this year has resulted in higher costs for consumers, pushed up inflation, and has bankrupted more than 20 energy suppliers in the UK. The causes are complex – the result of the pandemic, supply disruptions, and extreme weather, among other factors.
But the role of Russia in contributing to the price crisis has received particular scrutiny, something that Russian President Vladimir Putin has not exactly tried to tamp down. On more than one occasion, Putin has suggested that prices would come down if only Europe would grant the final approval for the contested Nord Stream 2 pipeline. Perhaps Putin was simply making an observation about market dynamics, but the whiff of blackmail was hard to miss.
Adding to this speculation was the fact that gas flows from Russia to Europe appeared to slow in August, just as prices started to rise. The lower gas shipments contributed to even higher prices in the ensuing weeks and months.
“It sure didn’t do anything that it could to alleviate [the energy crunch], and in fact, took advantage of it,” Amos Hochstein, the U.S. State Department’s senior advisor for global energy security, told CNBC on November 11, referring to Russia’s response to the price surge.
It is worth noting that the U.S. government, in what was largely a bipartisan consensus across the Trump and Biden administrations, and from both parties in Congress, fiercely opposed the Nord Stream 2 pipeline, deploying sanctions to stop its construction. And yet, after spending years trying to halt the expansion of Russian gas in Europe, the U.S. now finds itself in the awkward position of criticizing Russia for not sending more gas.
At the same time, the concern of dependency on Russia is not altogether unfounded. Russia accounts for about a third of Europe’s gas consumption and roughly half of its gas imports, and the energy relationship has been a longstanding source of contention. Most glaringly was the 2009 disruption of gas flows to Europe during a cold winter, ostensibly over a pricing dispute with Ukraine. The episode encapsulated Europe’s vulnerability to the whims of the Kremlin, and has informed much of the diversification efforts ever since.
U.S. Secretary of State Anthony Blinken warned Russia on November 10 not to use gas as a geopolitical tool. “Should Russia attempt to use energy as a weapon or commit further aggressive acts against Ukraine, we are committed and Germany is committed to taking appropriate action,” he said.
High prices have suddenly given Moscow enormous leverage. After years of low prices and an expanding global trade in LNG, there are precious few sources of additional supply at the moment. Fast-growing Asian markets – particularly China – are snatching up LNG cargoes at extreme prices, leaving European buyers with few alternatives.
Supply crunch easing, but geopolitical tension continues
As evidence of Russia’s influence at the moment, Goldman Sachs said in a November 7 note to clients that TTF prices (a prominent Dutch trading hub) could soar to $30/MMBtu or fall to $17/MMBtu, depending on whether or not Russia sends the normal amount of gas or not.
In a sign that the crisis might be somewhat on the wane, natural gas prices actually fell in recent trading days on signs that Russia is finally stepping up gas shipments on a pipeline route through Ukraine. Prices fell as much as 12 percent on November 8. Russian gas giant Gazprom said it was filling up its European gas storage sites, replenishing diminished stocks.
Meanwhile, the Dutch grid operator Nederlandse Gasunie NV said that natural gas production from the giant Groningen gas field might increase temporarily to help plug the supply deficit. Groningen is slated for closure due to its contribution to seismic activity.
However, the story is not over, and the geopolitical weapon was wielded again, but this time by Belarussian President Alexander Lukashenko, who on November 11 threatened to cut off gas supplies to Europe after the EU considered tighter sanctions on Belarus over a dispute over migrants and last year’s election in Belarus. Roughly 20 percent of Russia’s gas shipments to Europe travel through Belarus.
Press reports indicate that German Chancellor Angela Merkel spoke with Putin, who is a key economic and geopolitical sponsor of Lukashenko, where she asked Putin to ensure that gas shipments through Belarus continue uninterrupted. Putin reportedly said that she should take up her concerns with Lukashenko directly.
It’s unclear where the standoff will go from here, but the EU, backed by the U.S., appear determined to move forward with tighter sanctions. The geopolitical fights over gas are likely set to continue.

About Parvin Faghfouri Azar

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