Russia has exacerbated a shortage of European natural gas supplies, pushing prices to their 13-year high by quietly curtailing upselling to customers, executives and analysts said.
Pipeline exports of natural gas from Russian state-backed monopoly Gazprom to continental Europe fell by about a fifth from pre-pandemic levels in 2021, despite a strong recovery in demand and low stocks of the key fuel. The imbalance has contributed to prices in Europe soaring to their highest levels since 2008, driving up energy costs for homes and businesses.
The price hikes come during a period of volatile relations between Russia and the West. Russia said on Wednesday that its troops fired warning shots at a British destroyer off the coast of Crimea, the UK claims. At the same time, Germany and France this week tried to cool tensions with Russia by proposing a new EU plan for closer cooperation with Moscow.
Energy industry executives and analysts said that while Gazprom met its long-term contractual obligations, its reluctance to ramp up supplies to Europe through more immediate measures such as spot sales put pressure on the market.
“Gazprom is simply trying to maximize its profits at a time when spot prices are high, gas storage is empty and demand for LNG in Asia is high,” said a director of a German energy company. “They’re just opportunistic.”
Gazprom said in a statement that it “provides gas exactly in line with consumer wishes”.
“It is based on those same requests and on portfolio capacity optimization opportunities that the company is booking transport capacity in certain directions,” it added.
Several industry participants said Gazprom’s measures were intended to support prices and may have been intended to pressure EU governments to approve the controversial Nord Stream 2 pipeline to Europe.
“Gazprom is basically saying to the EU: ‘Give us the green light for Nord Stream 2 and we’ll send you all the gas you need,’” said Tom Marzec-Manser, ICIS’s chief European gas analyst.
“Don’t, and we won’t. We’re not going to send the extra gas through Ukraine and you’ve seen what that means for wholesale prices in a tight world [liquefied natural gas] market,” he added.
Nord Stream declined to comment.
The Nord Stream 2 pipeline, nearing completion, has been ravaged by US financial and legal sanctions and opposition from Eastern European countries, who have claimed it will increase Russia’s influence on the continent’s energy supply.
The pipeline, which runs through the Baltic Sea to Germany, also bypasses Ukraine, which relies heavily on Russia’s gas transit tariffs to support its economy. Russia has supported a proxy war in Ukraine’s eastern region since 2014, when Moscow annexed Crimea.
Germany has long supported the Nord Stream 2 project. It plans to approve the pipeline’s start this year after the Biden administration waived additional sanctions against the pipeline’s operator, a tacit admission that Washington was unable to prevent its completion. But the German elections in September could give the Green party, which opposed the pipeline, a boost.
Ronald Smith, a senior oil and gas analyst at BCS in Moscow, said: “Gazprom, shall we say, appears to be in no rush to voluntarily provide additional uncontracted [gas supplies] through Ukraine.”
Murray Douglas of consultancy Wood Mackenzie said he was surprised that Russia did not start increasing exports through Ukraine earlier this year, but argued that Gazprom’s stance could be more nuanced.
“In the years before Covid, Gazprom built up its market share in Europe and provided what was needed, but it may be that sending significant volumes through Ukraine today is more complicated,” he said.
Gazprom’s stance isn’t the only reason for rising prices, but it has exacerbated the rally, analysts say. A cold winter has sent natural gas in storage in Europe to its lowest level in nine years, while utility demand to burn natural gas instead of coal has been boosted by the rising cost of EU carbon rights to more than €50 per ton.
Global gas supplies are tight because more LNG cargoes are going to Asia instead of Europe. But Russia is seen as the only country with sufficient production capacity to dampen the rally.
Analysts said restricting spot sales was a quiet departure from Gazprom’s previous practice of supplying largely as much gas as customers wanted. Russia’s strategy may evolve to resemble that of OPEC, the oil producer cartel Moscow has been working with since 2016 to manage oil supplies and support prices.
Elena Burmistrova, director-general for exports at Gazprom, denied last month that there had been a change in strategy, but acknowledged there were requests for additional volumes. She said in May that the company “would be able to meet the additional demand” with “the launch of the Nord Stream 2 gas pipeline”.
ICIS’s Marzec-Manser argued that Gazprom “used the global supply situation to try to achieve the desired outcome”.
“They could have solved this problem already, but they choose not to. It is hard to argue that the extra cost of shipping through Ukraine is too high when the prices are so high. It makes people in the industry realize that something more strategic is at play.”
Additional reporting by Henry Foy in Moscow and Nathalie Thomas in Edinburgh