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Europe’s energy crisis: Did Putin’s suggestion for more gas make a difference?

Three months after Vladimir Putin suggested Russia could help ease Europe’s energy crisis, experts say little has changed.

As winter grips Europe, the continent’s low gas reserves and supply problems have driven up the cost of energy.

Although there have been some increases in natural gas supply from the United States, “we are seeing a continued shortfall compared to what we would normally expect in terms of Russian pipeline supply to the United States. Europe,” said Jack Sharples, a researcher at the Oxford Institute for Energy Studies who is also an expert on Russia and Gazprom.

Putin had suggested in October that state-controlled Russian supplier Gazprom should sell more in the European spot market, an announcement that appeared to mitigate exorbitant prices.

But even after Russia filled its domestic storage in November, there was little change on the European side.

“If you look at the numbers, you see just a bit of Gazprom activity, but really very limited and nothing close to what will be needed to get back to, say, historic levels of Russian pipeline supply,” Dennis said. Hesseling, head of the infrastructure, gas and retail department at the European Agency for the Cooperation of Energy Regulators.

The European Commission said on Thursday it was examining Gazprom’s behavior, with some analysts fearing Russia’s actions were aimed at pressuring Europe to give the green light to the new Nord Stream 2 gas pipeline.

Putin said in late December that Nord Stream 2 could help lower gas prices while adding that Gazprom had increased its gas exports. But others said temperatures are also low in Russia, which could lead to potential supply issues.

“It is indeed insane that a company, faced with growing demand, limits supply. This is quite rare behavior in a market,” EU Competition Commissioner Margrethe Vestager said Thursday when asked about Gazprom.

His comments came after the head of the International Energy Agency (IEA) issued his strongest criticism yet of Russia, saying it was likely part of the reason for high gas prices in Europe.

“We see strong elements of ‘artificial tightness’ in European gas markets, which appear to be due to the behavior of the Russian state-controlled gas supplier,” IEA Executive Director Fatih Birol said. in a statement posted on social media.

“Unlike other pipeline suppliers – such as Algeria, Azerbaijan and Norway – Russia reduced its exports to Europe by 25% in the fourth quarter of 2021 compared to the same period in 2020 – and by 22% from its 2019 levels.

Birol added that the IEA estimates “that Russia could increase deliveries to Europe by at least a third, or more than 3 billion cubic meters per month”, or about 10% of average monthly gas consumption. in Europe.

Experts say this is one of the contributing factors to a natural gas crisis that has, so far, been inflexible.

“Prices are very high at the moment. Even after the end of winter, so after March, the contracts signed at the moment for delivery in the future, are still at a high price level,” said Hesseling.

Doug Wood, chairman of the gas committee of the European Federation of Energy Traders, said there are still supplies of liquefied natural gas around the world.

“We still see opportunities to increase production and discussions are ongoing with major producing countries. So we are not in an emergency situation yet. The market is still functioning. There is still liquidity. Just , the prices are high,” he said. .

Low European gas storage

One of the current problems is that European gas storage is at its lowest in seven years, says Hesseling.

The level of gas storage is around 49% compared to around 65% in the same period last year, according to Gas Infrastructure Europe.

“There are concerns about storage withdrawals because of course storage is necessary to ensure that there is enough gas available across Europe throughout the winter period and particularly in the latter part of in the winter, you still need ample supplies in storage to pull it out properly,” Hesseling said.

“And technically speaking, as soon as your storage level gets too low, gas delivery capacity actually becomes less efficient, so you can get out of gas storages less easily.”

Sharples, of the Oxford Institute of Energy Studies, says the main problem is that if there is a cold spell this winter, Europe could draw a lot more gas from storage, which would cause problems later.

“The EU and the UK currently have around 52 bcm (trillion cubic meters of natural gas) in storage and in the average of the last five years between mid-January and… March 31, the five-year average years should take about 33 billion cubic meters of storage over that time,” Sharples said.

But if a particularly cold period also leads to increased demand in East Asia, Europe could empty out by the end of winter.

This would impact natural gas prices over the coming summer and winter as well, as European countries scramble to fill storage.

“I think if we have a cold in the next two months and we can pull a lot of storage, then the need to replenish that will keep prices relatively high through the summer,” Sharples said.

Is investment in renewable energies essential?

Experts say a cold spell last winter was one of many reasons for the current crisis in Europe. The pandemic has been another major factor, impacting the servicing of natural gas fields and other supply-side issues.

This, together with the phasing out of coal and the low production of renewable energy, has led to an increase in the demand for natural gas in Europe and Asia.

Natural gas is also impacting electricity markets that use it as a marginal fuel, a crisis “exacerbated by below-average hydroelectric generation and lower nuclear generation,” the IEA chief said, Birol.

He says greater investment in renewable energy must happen quickly “or global energy markets will face a turbulent and volatile period ahead”.

Doug Wood said part of the problem is that there is always a challenge with seasonal electricity supply, with renewables currently unable to provide rotational capacity during the winter months.

“Part of where we are now is that a lot of people see that gas has a very important role to play in this transition, which is impacting gas demand, not just now as an enabler of gas. introduction of renewables. And that’s going to continue for much longer,” Wood said.

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