Europe lacks natural gas. Is this Russia’s fault?
Frankfurt Europe lacks natural gas – dangerously short. A cold winter could mean a severe crisis, and utility bills are set to rise, weighing on ordinary people and weighing down the economic recovery from the coronavirus pandemic.
Russian President Vladimir Putin has promised to help fill European gas stores as energy prices soar – but supply shortages and political tensions have continued to destabilize energy markets, sending prices higher. This has hampered companies and pushed them to pass on costs to customers who already face higher bills at home.
Moscow has been accused of using the volatile situation to push for the rapid launch of a newly built Russian pipeline under the Baltic Sea: Nord Stream 2, which is awaiting approval from German regulators and has been criticized by Ukraine, the United States and other countries.
With Europe dependent on imported gas and Russia supplying 40% or more of those imports, Putin has leverage. He said the new pipeline was already filled with gas and could help boost supplies “the day after” it was approved.
The following are important factors behind the gas crisis:
How did Europe get into this message?
Multiple reasons. One was a cold winter that depleted gas reserves, which are used to generate electric power and are usually replenished in summer. This did not happen this year.
Hot weather is draining more gas than usual through the demand for air conditioning. Less wind means less renewable electricity, which has resulted in generators having access to gas fuel. Limited supplies of liquid natural gas, an expensive option that can be delivered by ship rather than pipeline, have been snapped up by customers in Asia.
On top of that, years ago Europe pushed for daily spot pricing, rather than long-term contracts. The long-term contracts were fulfilled by the Russian-controlled gas giant Gazprom but did not pump additional gas after that. Putin says customers with those contracts pay far less for gas than other buyers.
Prices were seven times higher in October than at the beginning of the year and have fallen to about four times the high recently.
How does the NORD STREAM 2 pipeline work in this?
Gazprom has invested billions in building a 1,234-kilometre (765-mile) pipeline to Germany. It would allow Russia to sell gas directly to a major customer and circumvent a pipeline through Ukraine, which faced relentless pressure from Russia after Moscow’s 2014 annexation of Crimea and its support for separatist rebels in Ukraine.
Even before the 2014 hostilities, Moscow launched efforts to diversify gas supply routes to the European Union, saying the Ukrainian system was dilapidated and accusing the country of gas withdrawal.
Ukraine will lose $2 billion in annual transit fees. It and Poland, which is on another bypassed pipeline, are staunchly opposed to Nord Stream 2. The United States and some other countries have been very critical, warning that the project will increase Europe’s energy dependence on Russia.
British Prime Minister Boris Johnson said Monday he hoped “other European countries will realize that a choice is coming soon, between incorporating more Russian hydrocarbons into giant new pipelines and committing to Ukraine and championing the cause of peace and stability.”
Several analysts said they do not expect Nord Stream to start operating this winter – although there is speculation that Europe could allow gas to start flowing while regulators review it, possibly in exchange for more gas being sent through Ukraine.
Does Russia have additional gas supplies?
Gazprom says no. “We are not interested in either record low prices or record high gas prices,” the head of the export branch, Elena Burmistrova, said this month, adding that “we want to see a well-balanced and predictable market.”
At least some analysts agree.
Russia should fill up its gas reserves – just like the European Union – after a cold winter, said Thomas O’Donnell, an energy and geopolitical analyst at Graduate School of Hertie College in Berlin.
While Putin is enjoying his role as the “godfather of gas” and exploiting the shortage to push for approval of Nord Stream 2, “the more mundane fact is…there simply wasn’t Russian gas reserves for export until Russia finished filling up its own gas. Domestic storage to separate Winter, “The Godfather was cheating,” wrote O’Donnell, writing for globalbarrel.com.
O’Donnell said the only way for Russia to help fill the gas shortfall this winter was to pump more gas through Ukraine — assuming Gazprom was willing to do so.
O’Donnell said Putin ordered Gazprom to send the gas to European storage after Russia finished filling its reserves last week, but it was “limited”. “It could be a show to do so much more.”
US officials agree.
“Russia can and should provide additional supplies through Ukraine, which has enough pipeline capacity, and they don’t need Nord Stream 2 for that,” Karen Dunfried, the top US diplomat in Europe, said last week.
“If Russia fails to do so, it will obviously harm European energy security and raise questions about Russia’s motives for withholding those supplies,” she said.
By emphasizing Europe’s dependence on Russian gas, O’Donnell said, Putin and Gazprom may hope for more permissive EU market regulation of Nord Stream 2.
The pipeline was delayed on Tuesday when German regulators suspended the approval process due to an issue with the pipeline operator’s status under German law.
What impact could gas shortages have on Europe?
Sooner or later natural gas prices will be reflected in home and work fees for electricity and gas.
The European Commission, the EU’s executive arm, has cited rising energy costs as a drag on the pandemic recovery because higher bills will take money out of consumer spending and business investment.
The narrow market in Europe reverberates in the US, helping to push up prices there, although the US market hasn’t seen anywhere near as high as in Europe.
What does winter mean?
Analysts say it is difficult to predict. Everyone hopes there won’t be a big storm in late winter that could threaten dwindling supplies.
Analysts have speculated that electricity could be rationed – perhaps for some industrial customers initially – if things really go wrong.
An energy apocalypse—a complete loss of electricity or heat if gas reserves are drawn to zero and cannot be replaced—is likely to cause deaths among poor and vulnerable residents, such as what happened in Texas this year when a winter storm caused blackouts, resulting in More than 200 deaths.
What about the threat of Belarus to cut off gas supplies?
Poland and other European Union countries have accused authoritarian Belarus President Alexander Lukashenko of using migrants trying to reach the European Union through Belarus’ border with Poland as pawns to retaliate against his government’s sanctions over the protests.
With the European Union threatening more tough sanctions, Lukashenko threatened to cut off Russian gas supplies to Europe that pass through a pipeline in Belarus.
Although his statement shook the markets further, it is unlikely that Lukashenko will be able to fulfill his threat, given his political dependence on Russia and Moscow’s desire to preserve the reputation of a reliable supplier.
Valery Karpalevich, an independent Belarusian political analyst, dismissed Lukashenko’s threat as a threat.
“Decisions are made in Moscow, not in Minsk,” he said. “Lukashenko wants to frighten the European Union and drag Putin into a confrontation, trying to provoke the Kremlin to take more radical measures.”
Isachenkov reported from Moscow. The Associated Press contributed to this report by Yuras Karamano in Kiev, Ukraine.
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