Russian Gazprom’s Strategy Impact on European Future Gas Costs

Europe is currently in the midst of an energy crisis, as a result of gas shortage and the consequent rise in prices. A silent dispute is underway between the EU countries and Russia. There have been allegations that Russia has been, and still is taking advantage of the crisis for geopolitical gain, but President Putin has categorically dismissed these claims. Indeed, it is a heated and complex issue, and in order to gain a deeper understanding, it is fundamental to start from the beginning. First, it is crucial to keep in mind that Europe depends on more than 50% on Russia for gas distribution. Norway and Algeria mostly distribute the rest. Gazprom is Russia’s largest state-owned energy business, supplying Europe via three major pipelines: the Nordstream, the Yamal-Europe, and the Brotherhood, all of which transit via Belarus and Ukraine. There are two types of agreements between the EU and Gazprom: long-term contracts lasting 10 to 25 years, and “spot” transactions, or one-off purchases of a fixed amount of gas.

In the past year, the demand fell due to the pandemic, and although the request has now risen again, a reduction in distribution is still occurring. According to data supplied by Gazprom itself, since September 26th 2021 volumes delivered via Belarus decreased by over 70% and those via Ukraine by 22%. However, experts affirmed Gazprom has actually met its annual obligations to European countries, but it could still provide more gas if it wanted to. This shortage was then followed by a significant rise in prices. In fact, according to ‘Teller Report’, natural gas prices soared by 600% in 2021, and “the Dutch TTF gas futures price, which is an indicator, temporarily reached a level more than eight times that of the same period last year in early October.” This price rush has frightened European countries, which now fear a shortage of gas and an obligatory rise in their domestic bills.

 “Gas prices were rising because of increasing demand related to economic recovery across the EU while supplies were not rising in step, (…) The EU is grateful that Norway is stepping up production” – said the President of the European Commission Ursula Von der Leyen on October 5th speaking in the Estonian capital Tallinn. She also added that “Gazprom fulfilled long-term contracts with us, but did not respond to higher demand, as it did in previous years. Europe is now too dependent on gas, and it is too dependent on its imports”.

Official motivations behind Gazprom’s decision to reduce gas exportations have to be found in the increasing competitive demand for gas from the Asiatic markets (whose old and not renovated pump stations and pipelines cannot satisfy without dropping distribution to other areas), and in the forecast of a “colder Russian winter”.

Apart from façade reasons, many have accused Russia of exploiting this crisis for its geopolitical and financial ends. According to Jack Sharples from the Oxford Institute of Energy Studies, “a significant section of the mainstream European media has attributed this to Gazprom intentionally withholding supplies to force the German regulator and European Commission to approve Nord Stream 2”. Nordstream 2 is a new pipeline already built, which would let Gazprom to double the supply of gas to Germany bypassing Ukrainian territory and passing through the Baltic Sea. Indeed, an ongoing dispute is occurring between Ukraine and Russia, and therefore the latter hopes that the approval of Nordstream 2 will come quickly. President Putin has labeled these accusations as “complete rubbish and politically motivated tittle-tattle”.

Despite these political accusations, the unfolding energy crisis needs prompt and adequate solutions. The consequences could be dramatic, if no agreement is found. Alexander Novak, former Minister of Energy of Russia from 2012 to 2020, stated that: “even metallurgical firms, which largely use electricity in production, are suspending their activities”. In such a scenario, it comes spontaneously to think about the necessity to find common European alternatives for energy supplies, like new shared and more ecological systems. However, as usual, the EU struggles to prove its unity and true cooperation among States when it would be really necessary, and this brings Europe to continue to be heavily dependent on and blackmailed by foreign powers.  

 

 Bibliography

Gas price rises: Russia not withholding supplies, says ambassador to UK. (2021, October 17). BBC News. https://www.bbc.com/news/business-58945024

Gazprom taglia ancora Le forniture, Mosca “gioca” col gas europeo (Di C. Paudice). (2021, October 5). L’HuffPost. https://www.huffingtonpost.it/entry/gazprom-taglia-ancora-le-forniture-mosca-gioca-col-gas-europeo_it_615c5b90e4b0a15c37ff356c

Europe gas prices: How far is Russia responsible? – Horton, J. (2021, October 18). BBC News. https://www.bbc.com/news/58888451

 

0 0 votes
Article Rating

Leave a Reply

0 Comments
Inline Feedbacks
View all comments