Russia’s new gas pipeline to Germany delivers more electricity to Moscow

Foreign policy hawks feared that the new Nord Stream 2 gas pipeline from Russia to Germany would increase Moscow’s influence over Europe. The first few weeks after the completion of the pipeline do little to allay their concerns.

In Europe, spot gas prices are at record highs and inventories are uncomfortably low. Fears are growing that a cold winter will force the region into a bidding war with Asia for liquefied natural gas shipments to keep lights and radiators on, and all eyes are on Moscow for help.

Gazprom, Russia’s state-controlled gas producer, is Europe’s largest supplier of this raw material. On Tuesday, the International Energy Association said Moscow could do more to alleviate the gas shortage in Europe and that it was “an opportunity for Russia to underline its credentials as a reliable supplier to the European market”.

Nord Stream 2 is managed by a Swiss company with financial investments from five European energy companies, but ultimately owned by Gazprom. Although construction was completed earlier this month, the project has yet to be approved in Berlin and Brussels.

Europe usually replenishes its gas reserves during the summer, but that has not happened this year. While independent stocks have been built up in recent months, Gazprom has exhausted its European gas storage and refused to offer additional fuel to northwestern Europe for the time being.

The company should have spare gas. At the start of the year, it said it had a maximum production capacity of 550 billion cubic meters of gas. Currently, it is on track to produce nearly 510 bcm. There are plausible explanations for some of these failures, and the problem for Europe has been compounded by Gazprom’s need to replenish Russian gas stocks. But even a partial closing of the output gap would close Europe’s inventory shortfall, which is around 15 billion cubic meters.

“It’s a big gap between 510 and 550. Maybe they could increase it a bit, but it’s hard to know how far they could really scale up,” said Henri Patricot, energy analyst at UBS. .

Last week, the Kremlin spokesman said: “The fastest launch of Nord Stream 2 would significantly balance the parameters of natural gas pricing in Europe, including in the spot market,” according to several press reports. Tying the additional gas supply to Nord Stream 2 when existing pipelines have spare capacity, notably through Ukraine, makes it difficult not to see political motives in Russia’s position.

The final approval of Nord Stream 2 by the German pipeline regulator and the European Commission is expected to take between six and eight months, according to Sindre Knutsson, gas market analyst at consultancy Rystad Energy. “We haven’t seen any sign of speeding up the approval process,” he says. It might even hit additional snags. The pipeline remains controversial.

Washington and many Eastern European capitals feared that Nord Stream 2 would increase Europe’s dependence on Russian gas, give Moscow more regional power, and be used to bypass it. ‘Ukraine. Representatives of Nord Stream 2 have consistently dismissed the accusations and insisted it was a business plan to deliver more gas to Europe as its local reserves dwindle. Both sides are right, but in the current situation geopolitics is a big deal.

The current gas market in Europe is not expected to last beyond next winter. Warmer spring weather will reduce demand, while gas facilities currently closed for maintenance delayed from 2020 or recent storms are expected to resume operation. Around 20 million tonnes of new LNG capacity will also be commissioned early next year.

Stock selection ranking heard

But a short-term shortage is always a big problem. The fallout began even before most households turned on their heating. Some industrial users slow down production or even close factories until gas prices drop. Utilities are restarting old coal-fired power plants, even at additional costs for higher carbon emissions. LNG prices are rising.

Politics is one of the many converging reasons for record gas prices in Europe, which are themselves becoming a political issue. Nord Stream 2 still looks likely to be approved, according to the existing schedule, but a cold winter could force regulators to act faster. The pipeline brought more electricity to Moscow before it delivered any gas.

Write to Rochelle Toplensky at [email protected]

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Comments are closed.