Russia opts against increasing gas supplies to Europe

A man works in the Amur gas processing plant. It covers an area of ​​800 hectares, and has an estimated annual capacity of 42 billion cubic meters of natural gas.

Yuri Smitok | TASS | Getty Images

LONDON – Russia chose not to send more natural gas supplies to Europe, dampening hopes that Moscow might loosen its grip on the market shortly after President Vladimir Putin said his country was ready to help.

The highly anticipated auction results on Monday showed that Russian gas giant Gazprom has not booked additional gas transportation capacity for November either through the Ukrainian pipeline system or lines to Western Europe via Poland.

Gazprom booked only 30 million cubic meters per day on the Yamal-Europe route, with 86.5 million cubic meters per day available for November, an amount similar to what was booked in September, and has not booked any volumes through Ukraine.

The auction results are a major signal for the upcoming volume market because they happen two to three weeks before the month that natural gas is flowing.

Energy analysts say the findings show Russia is in no hurry to boost supplies to the region and provide further evidence that the Kremlin is seeking to allow trade flows to begin smoothly through Nord Stream 2 – a controversial natural gas pipeline designed to deliver Russia. Gas directly to Germany via the Baltic Sea.

It comes shortly after Putin suggested that his country could provide additional supplies to Europe at a time when millions of households faced rising winter energy bills.

Speaking to CNBC’s Hadley Gamble at Russia’s Energy Week on October 13, the Russian president also dismissed suggestions that the country is using gas as a geopolitical weapon as “politically motivated nonsense.”

Show more gas “conditional on Nord Stream 2”

Russian natural gas flows to Europe have been volatile since the end of September, adding to market anxiety and skyrocketing prices.

November contracts were trading at the Dutch TTF Center – a European natural gas standard – at around 92 euros per megawatt-hour on Tuesday morning. The first month contract is down nearly 2% on the day, paring earlier gains, and has ballooned nearly 400% since the start of the year.

European Union lawmakers and the head of Ukraine’s state energy company Naftogaz previously accused Gazprom of deliberately withholding additional quantities of gas from Europe and deepening the region’s energy crisis.

The International Energy Agency, in a rare public rebuke of Russia, also issued a statement in late September calling on Moscow to send more gas to Europe to ease a growing supply crisis in the region.

Russia said it has fully fulfilled its contractual obligations to Europe.

Separately, Switzerland-based operator Nord Stream 2 said on Monday it has filled the first line of the pipeline with so-called “technical” gas and is now ready for commercial flows.

“This development has increased the risk of capacity not being booked through auctions across Poland and Ukraine, as Gazprom will want to prioritize productivity over its new assets, rather than paying for additional capacity,” said Tom Marzik Manser, Head of European Gas Sector. Analyst at ICIS, Commodity Intelligence Service.

Nord Stream 2 was completed last month, and since then the German energy regulator has said it has four months to complete certification for the project after receiving all the paperwork needed to obtain an operating license.

A worker adjusts the pipeline valve at the Gazprom BGSC Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust Luga, Russia, Thursday, Jan. 28, 2021.

Bloomberg | Bloomberg | Getty Images

“With the European gas balance tightening in the winter, the risk is high that Russian gas will not provide additional supply flexibility,” Katerina Filippenko, principal analyst for European gas research at Wood Mackenzie, said in a research note.

“The completion of Nord Stream 2 gas entry procedures, combined with the lack of large-capacity bookings on other routes, seems to send a strong signal to Europe – Gazprom may be ready to supply more gas, but it is contingent on getting Nord Stream 2 light.”

Nord Stream 2’s critics argue that the pipeline does not comply with European climate goals, increases the region’s dependence on Russian energy exports, and is likely to enhance Putin’s economic and political influence over the region.

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