Energy

Russia offered to deliver more gas to Europe. But analysts are uncertain about its possibility

Russia offered to deliver more gas to Europe. But analysts are uncertain about its possibility

Highlights

  • Europe is in the midst of an energy crisis, with high demand and limited supply putting downward pressure on gas prices.
  • On Wednesday, Russian President Vladimir Putin intervened, pledging to enhance Russia’s gas exports to Europe.
  • Analysts are skeptical that Russia can and will follow through on its pledge.

LONDON, UK – Winter hasn’t even arrived yet, and Europe is already witnessing a gas market crisis due to high demand and insufficient supply, putting downward pressure on prices. As a result, when Russian President Vladimir Putin intervened on Wednesday, proposing to expand Russia’s gas supplies to Europe, regional gas prices (which had risen by an astounding 500 percent this year) plummeted, and markets exhaled a sigh of relief.

Market analysts soon deduced that the offer to boost supply to Europe was likely made to put pressure on Germany to approve the Nord Stream 2 gas project (which will transport Russian gas to Germany via the Baltic Sea), as Russia is awaiting approval by Germany’s energy authority.

Current Scenario:

“The Russian domestic gas market is at present tight, with comparatively low inventories, output expected to be at a peak, and winter alarming in Russia as well, reducing gas export capacity,” she said. “There is also a minor suggestion that Gazprom, the Russian monopoly on gas export pipelines, supplying 35% of Europe’s gas demand, would be greatly impacted.”

She warned that “European prices are unlikely to cool substantially in 2021” because Gazprom is attempting to pump more gas to Europe’s spot buyers via existing routes. “Gazprom is unlikely to deliver more than around 190bcm (billion cubic meters) to Europe this year, given its small room for maneuvering,” she said.

Mike Fulwood, a senior research fellow at the Oxford Institute for Energy Studies, is skeptical that Russia will be able to send more gas to Europe, even though output is currently at record levels.

They have Great Capacity!

Fatih Birol, the Executive Director of the International Energy Agency, seemed certain that Russia could increase gas supplies to Europe, telling the Financial Times on Thursday that the IEA’s analysis suggested Russia could increase exports to Europe by around 15% of peak winter supply.

Birol urged Russia to demonstrate that it is a “reliable provider,” saying the gas exporter could do so if it so desired. “If Russia operates as it promised, it would do yesterday and amplify shipments to Europe, the market will stabilize,” he said. “I’m not saying they’ll do it, but they can if they want to.”

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