s Europe struggles with an energy crisis that has resulted in extremely high gas prices, Russia acts as a “savior” that is willing to help its European partners. But even if Moscow increases natural gas and coal supplies to the European Union, chances are very slim that the crisis will be over any time soon.
It is not a secret that the EU is heavily dependent on Russian energy. Russia is the main EU supplier of crude oil, natural gas, and solid fossil fuels. According to reports, the country supplies around 50% of the EU’s natural gas imports. Norwegian state-owned energy company Equinor and Russian Gazprom cover 60% of the EU's gas needs. Thus, the two corporations stand to likely benefit from the current European gas crisis. Gazprom shares on the Moscow Stock Exchange have already hit new highs, but in spite of that some Russian experts argue that even the price of $1200 per thousand cubic meters of natural gas is not a firm guarantee that the Russian budget will have a colossal income. Moscow is reportedly selling gas to China at very low rates—only $140 per thousand cubic meters. There are also several European countries that signed long-term contracts with Gazprom, which gives them a significant discount for Russian natural gas. More importantly, it is the EU, rather than China, that is Gazprom’s key market, which is why Russian President Vladimir Putin recently offered to increase gas supplies to Europe. But will that reduce gas prices?
“Higher gas prices in Europe are a consequence of a deficit of energy and not vice versa and that’s why we should not deal in blame shifting, this is what our partners are trying to do,” Putin stressed.
Indeed, the International Energy Agency (IEA) said that Russian exports to the EU were down from their 2019 levels and that "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." On the other hand, Deputy Head of the European Commission, Frans Timmermans, pointed out that “Gazprom fully complies with long-term contracts for gas supplies to the EU and does not manipulate prices on the gas market.” In other words, Russia fulfills all its obligations to supply gas to Europe, but it could supply more. In order to do that, according to Putin, “Moscow needs requests” from its Western partners.
Some reports suggest that Europe has already asked Russia for more coal supplies, even though the EU plans to phase out coal power as early as 2030. But if the world is really facing a deficit of energy, and the era of fossil fuels is coming to an end, it is questionable if Russia will increase energy supplies to Europe. According to Russian officials, the country has natural gas reserves for another 103 years, and Europe's top domestic producer of natural gas, the Netherlands, began phasing out its main gas field Groningen in 2018. Europe has, therefore, already de facto ran out of gas, and is now strongly pushing for green energy, although it is debatable if it can completely replace fossil fuels in the near future.
At this point, Europe remains heavily dependent on Russian carbons, and even the United States insists that Moscow should do more to ensure European energy security. Several European and American officials have stressed that Gazprom is using high prices to get approval for the Nord Stream 2 pipeline from German and EU regulators. Although Nord Stream 2 is widely seen as a Russian geopolitical project, in reality, it is a product of an agreement between Russia’s state-owned energy giant Gazprom and several European oil and gas corporations, namely Royal Dutch Shell, German utility company E. ON, French electric utility Engie, and Austrian integrated oil and gas company OMV. That could be one of the reasons why attempts to prevent the construction of the pipeline have failed.
Still, even if Nord Stream 2 becomes fully operational before winter, it is unlikely to lead to stabilization of the European energy sector. It is estimated that the new pipe could ship an additional 5.6 billion cubic meters of natural gas, but it may not make a big difference. What could, hypothetically, change the situation is an increase in usage of the existing pipelines that pass through Ukraine. The Kremlin, however, tends to bypass Ukrainian territory for both political and financial reasons. Gazprom has recently signed a long-term gas supply agreements with Hungary, and the Central European country along with Croatia has already started receiving Russian energy via TurkStream pipeline, effectively bypassing Ukraine as a transit country.
The United States and Germany, however, strongly insist that Russia should continue using the former Soviet republic as a transit country after 2024, when Gazprom’s contract on gas transit with Ukraine’s state-owned energy corporation Naftogaz expires. Given that the Kremlin already discussed this issue with Germany, it is entirely possible that a new contract will be signed, maybe even before 2024, although the volume of gas that will go through Ukrainian pipelines is highly uncertain.
One thing is for sure—many European countries, possibly even Ukraine, will now rush to sign stable long-term gas contracts with Gazprom, hoping to get a pre-crisis rate for Russian natural gas.
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Making Sense of the European Gas Crisis
Photo via Pixabay.
October 26, 2021
As Europe struggles with an acute energy crisis ahead of winter, will European countries rush to sign stable long-term gas contracts with Russian Gazprom?
s Europe struggles with an energy crisis that has resulted in extremely high gas prices, Russia acts as a “savior” that is willing to help its European partners. But even if Moscow increases natural gas and coal supplies to the European Union, chances are very slim that the crisis will be over any time soon.
It is not a secret that the EU is heavily dependent on Russian energy. Russia is the main EU supplier of crude oil, natural gas, and solid fossil fuels. According to reports, the country supplies around 50% of the EU’s natural gas imports. Norwegian state-owned energy company Equinor and Russian Gazprom cover 60% of the EU's gas needs. Thus, the two corporations stand to likely benefit from the current European gas crisis. Gazprom shares on the Moscow Stock Exchange have already hit new highs, but in spite of that some Russian experts argue that even the price of $1200 per thousand cubic meters of natural gas is not a firm guarantee that the Russian budget will have a colossal income. Moscow is reportedly selling gas to China at very low rates—only $140 per thousand cubic meters. There are also several European countries that signed long-term contracts with Gazprom, which gives them a significant discount for Russian natural gas. More importantly, it is the EU, rather than China, that is Gazprom’s key market, which is why Russian President Vladimir Putin recently offered to increase gas supplies to Europe. But will that reduce gas prices?
“Higher gas prices in Europe are a consequence of a deficit of energy and not vice versa and that’s why we should not deal in blame shifting, this is what our partners are trying to do,” Putin stressed.
Indeed, the International Energy Agency (IEA) said that Russian exports to the EU were down from their 2019 levels and that "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." On the other hand, Deputy Head of the European Commission, Frans Timmermans, pointed out that “Gazprom fully complies with long-term contracts for gas supplies to the EU and does not manipulate prices on the gas market.” In other words, Russia fulfills all its obligations to supply gas to Europe, but it could supply more. In order to do that, according to Putin, “Moscow needs requests” from its Western partners.
Some reports suggest that Europe has already asked Russia for more coal supplies, even though the EU plans to phase out coal power as early as 2030. But if the world is really facing a deficit of energy, and the era of fossil fuels is coming to an end, it is questionable if Russia will increase energy supplies to Europe. According to Russian officials, the country has natural gas reserves for another 103 years, and Europe's top domestic producer of natural gas, the Netherlands, began phasing out its main gas field Groningen in 2018. Europe has, therefore, already de facto ran out of gas, and is now strongly pushing for green energy, although it is debatable if it can completely replace fossil fuels in the near future.
At this point, Europe remains heavily dependent on Russian carbons, and even the United States insists that Moscow should do more to ensure European energy security. Several European and American officials have stressed that Gazprom is using high prices to get approval for the Nord Stream 2 pipeline from German and EU regulators. Although Nord Stream 2 is widely seen as a Russian geopolitical project, in reality, it is a product of an agreement between Russia’s state-owned energy giant Gazprom and several European oil and gas corporations, namely Royal Dutch Shell, German utility company E. ON, French electric utility Engie, and Austrian integrated oil and gas company OMV. That could be one of the reasons why attempts to prevent the construction of the pipeline have failed.
Still, even if Nord Stream 2 becomes fully operational before winter, it is unlikely to lead to stabilization of the European energy sector. It is estimated that the new pipe could ship an additional 5.6 billion cubic meters of natural gas, but it may not make a big difference. What could, hypothetically, change the situation is an increase in usage of the existing pipelines that pass through Ukraine. The Kremlin, however, tends to bypass Ukrainian territory for both political and financial reasons. Gazprom has recently signed a long-term gas supply agreements with Hungary, and the Central European country along with Croatia has already started receiving Russian energy via TurkStream pipeline, effectively bypassing Ukraine as a transit country.
The United States and Germany, however, strongly insist that Russia should continue using the former Soviet republic as a transit country after 2024, when Gazprom’s contract on gas transit with Ukraine’s state-owned energy corporation Naftogaz expires. Given that the Kremlin already discussed this issue with Germany, it is entirely possible that a new contract will be signed, maybe even before 2024, although the volume of gas that will go through Ukrainian pipelines is highly uncertain.
One thing is for sure—many European countries, possibly even Ukraine, will now rush to sign stable long-term gas contracts with Gazprom, hoping to get a pre-crisis rate for Russian natural gas.
