Natural gas updates
Sign up to myFT Daily Digest to be the first to know about Natural gas news.
Russia’s position as a reliable gas supplier to Europe is in the dock.
Record prices across the UK and continental Europe have drawn attention to lower supplies of natural gas from Russia this summer, leaving many questioning whether a quiet squeeze of the market has been executed by Moscow.
The aim, the theory goes, would be to boost prices to such a level that Germany rushes through the approval of the politically controversial Nord Stream 2 pipeline, the construction of which — now completed — was beset by US sanctions and opposition from countries in eastern Europe.
On Friday 40 members of the European Parliament, largely from Poland and the Baltic States, called for an investigation of Gazprom — the Russian state-backed monopoly pipeline exporter. They want a probe of whether Gazprom’s actions are behind the price spike that is now threatening a broader disruption of European industry.
Gazprom and its defenders say this is overblown. They point out that Gazprom has met all of its long-term supply contracts. No taps have been turned off. Some countries in Europe, including Germany, have even received higher supplies from Russia this year than last.
They argue that it is Russophobia to blame Gazprom for what is becoming a worldwide issue, with gas prices in Asia also soaring as more countries try to replace at least some of the coal in their power mix with cleaner-burning natural gas. European domestic gas production has also fallen sharply.
But Gazprom’s critics counter that it only takes a small swing in the balance of supply and demand in commodity markets for prices to soar or sink. The key part of their argument is that supplies to north-west Europe from Russia have, on average, been lower this year than before the pandemic.
In addition, Gazprom has repeatedly declined to auction any top-up gas supplies in the spot market through pipelines passing through Ukraine, which Nord Stream 2 — running directly from Russia to Germany through the Baltic Sea — is largely designed to supplant.
After a prolonged winter in 2020-21, gas storage in Europe was drained to lower levels than normal, so demand for supplies from the spot market to refill inventories was higher. But Europe’s biggest supplier has declined to make that additional gas available.
With winter around the corner, storage levels in Europe are now running well below the normal level for the time of year, which has become the chief driver of the spike in prices. There are genuine fears that in the event of a prolonged or particularly cold winter, the market could run short of gas.
Gazprom’s public pronouncements have muddied the waters. The company has acknowledged that it is filling domestic storage at a higher rate than in previous years, suggesting there might be less gas available to send.
But Alexei Miller, the head of Gazprom, said on Friday that the company is capable of increasing gas production and providing extra supply if needed.
A spokesperson for Russian president Vladimir Putin also said this week that starting up Nord Stream 2 would make more gas available, including in the spot market.
Putin himself has poked the fire of the situation, saying that “smart alecs” in the the European Commission were at least partly to blame, having pushed for “market-based” pricing as part of efforts to increase competition in gas supplies.
But if Gazprom is happy to make spot sales once Nord Stream 2 is up and running, despite its preference for long-term contracts, are people justified in asking why they will not do so now?
Critics say the strongest evidence that Gazprom is playing a dangerous game with the market can be found in the data on European storage. Despite total storage being lower than normal, European energy companies have broadly managed to top up inventories at facilities they control to a reasonable level. Most of the storage in Europe that has not been filled is actually controlled by Gazprom itself.
By leaving its own storage facilities in Europe at very low levels, Gazprom is effectively declining to supply itself, and signalling to the industry that the market will be tight. Such actions can spook the market even if Gazprom is supplying its long-term customers.
If Gazprom were to start to fill its European-based storage now, prices would be likely to stabilise or retreat. But while winter might be coming, whether any more Russian gas will arrive with it remains in doubt.
david.sheppard@ft.com