Energy

The U.S. predicted it right – Europe become a ‘hostage’ to Russia for energy

The U.S. predicted it right - Europe become a ‘hostage’ to Russia for energy

NOTES:

  • On Wednesday, Russia came to Europe’s aid and offered to increase gas supplies to the continent, despite rising prices.
  • Experts believe the decision demonstrates that Europe is now largely at Russia’s mercy in terms of energy.
  • The United States has warned for years that Europe is susceptible to Russia’s ability to turn gas supplies on and off.
  • Natural gas futures in Europe reached record highs this week, with regional benchmark prices up about 500 percent so far this year.

LONDON – Experts said one thing had become evident after Russia came to Europe’s rescue and offered to expand gas supply to the region amid increasing prices: Europe is now largely at Russia’s mercy when it comes to energy, exactly as the US had warned.

Natural gas contracts in Europe reached new highs this week, with regional benchmark prices up about 500 percent so far this year, as heightened demand and a supply shortage put pressure on the energy sector as the weather turns colder. Prices fluctuated on Wednesday, touching new heights before retreating after Vladimir Putin, the President stepped in, offering a rise in Russia’s gas supplies to Europe.

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In a research report released Wednesday, Timothy Ash, emerging markets senior sovereign strategist at Bluebay Asset Management, called the scenario “unbelievable.”

′′[It’s] plain evident that Russia has Europe (the EU and the United Kingdom) in an energy bind, and Europe (and the United Kingdom) are too weak to call it out and do anything about it,” he said, describing it as “energy blackmail.”

Putin offered an increase in supplies to Europe during a televised government meeting on Wednesday. He also chastised the region for terminating many long-term gas contracts in favor of spot agreements, adding the Kremlin was willing to negotiate new long-term gas sales contracts.

Most experts believe Russia intentionally restricted gas supply to Europe to order to hasten Germany’s approval of the Nord Stream 2 pipeline. However, Russia has denied this, with Dmitry Peskov, Putin’s spokesperson, rejecting on Wednesday that Russia played any part in Europe’s energy crisis.

However, Russia’s Deputy Prime Minister Alexander Novak marked on Wednesday that the predicted German certification of the controversial pipeline may help normalize prices.

Experts agree that Europe requires to vary its energy sources away from Russia.

“The more Europe diversifies its supply, the lower the risk,” Fulwood said, adding that increasing amounts of LNG are being sourced from the United States. “We’ve seen a considerable and remarkable increase in the imports of liquefied natural gas in Europe in the previous several years, particularly from the US market,” he said.

Fulwood described the scenario in gas markets as “a perfect storm of demand recovery from Covid and a tight supply position,” about the global gas market and supply restrictions affecting other gas suppliers.

“There has been a temporary supply shortage and most of those logistics will begin to simplify but it will not last till next year so for the upcoming months we’re free from the weather,” he added.

 

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