Russia’s Gazprom feels the heat over Europe’s red-hot gas prices

October 7, 2021

By Katya Golubkova and Vladimir Soldatkin

MOSCOW (Reuters) -Europe’s biggest gas firms say the continent’s top supplier Gazprom is fulfilling its long-term contracts yet the Russian energy giant remains at the centre of a dispute about whether it could do more to ease the price pain in a red-hot spot market.

The rocketing gas price, with the European benchmark up almost 600% this year, fuelled by low inventories and surging demand in Asia and elsewhere as economies recover from the COVID-19 crisis, has put Gazprom in Europe’s crosshairs.

The Russian gas export pipeline monopoly, which supplies 35% of European needs, insists it is meeting contracted commitments – which top European clients have confirmed to Reuters.

But European politicians, under pressure from consumers who face a huge jump in winter heating bills, say Russia could supply more and is using the gas price spike as leverage in a dispute over the Gazprom-backed Nord Stream 2 pipeline project.

“Eni is receiving from Gazprom all the quantity of gas which are nominated within the long-term contracts,” the Italian firm said in emailed comments, echoing statements sent to Reuters by half a dozen other leading European energy companies.

But European Union politicians still blame Gazprom for stoking the gas price problem, saying it has not responded to surging demand by offering extra volumes to spot market buyers, while they say Europe’s other big supplier Norway has done so.

“We are very grateful that Norway is stepping up its production, but this does not seem to be the case in Russia,” European Commission President Ursula von der Leyen said on Tuesday.

EU parliamentarians want Gazprom investigated over possible violations of competition rules. They say it has not sent more gas in a bid to force swift approval for Nord Stream 2, the newly built pipeline that will send Russian gas to Germany but which needs a greenlight before pumping starts.

The project is opposed by the United States and some European nations, saying it will make the EU even more dependant on Russian fuel. Germany has stuck with the plan but a final nod may still be months away.

SPOT MARKET SHIFT

Gazprom, which has no commercial obligation to supply Europe’s spot market, has said it was meeting contracted obligations and previously warned Europe that relying on the spot market rather than long-term deals would bring volatility. It declined to make further comment to Reuters for this article.

Russian President Vladimir Putin said on Wednesday that Russia was boosting supplies and acting as a reliable partner, but he said the EU erred when it shifted towards a spot market under steps taken years ago.

Kremlin spokesman Dmitry Peskov said: “As far as I know, Gazprom is in constant contact with its customers in Europe, all permissible additional supply requests are being met by Gazprom.”

Yet, it remains unclear how much more Gazprom can do to boost supplies, with its own inventories running low, output already near historic highs and Russia’s winter needs looming.

It is also not clear whether European firms, with long-term contracts, have sought more fuel. When asked by Reuters, European energy firms Wingas and Engie said they had not asked for extra gas, while Eni, Uniper, OMV and RWE did not elaborate apart from saying Gazprom had met contracted commitments.

Two sources at Gazprom said they had not seen any requests for more fuel from spot buyers.

Gazprom figures show its exports outside the former Soviet Union rose 15.3% year on year in the first nine months to 145.8 billion cubic metres (bcm). That includes to Europe and Asia, where an economic surge has sucked in gas for power generation and other uses, much of it in liquefied natural gas (LNG) cargoes.

Nord Stream 2 will add annual capacity of 55 bcm.

There is, however, little obvious sign of Gazprom racing to pump more to Europe’s spot buyers via existing routes: it has only booked about a third of transit capacity offered for October via the Yamal-Europe pipeline and no extra transit capacity via Ukraine.

“If Gazprom wants to book additional volume, there is plenty available,” said Xun Peng, a gas analyst with Refinitiv. “The ones buying gas from the spot market are facing challenges as the current gas price is at a record high.”

CONSTRAINTS

Some spot market figures indicate lower Russian supplies. Gazprom’s spot sales in Europe for same-year delivery were 0.5 bcm in July-September this year compared to 3.1 bcm a year ago, when European economies were still on their backs, said Dmitry Marinchenko, senior director at Fitch ratings agency.

“It is not fully clear whether Gazprom’s modest exports level is a result of production constraints at home or an attempt to ensure a stronger demand once Nord Stream 2 is up and running,” he said.

European gas prices eased in August when Gazprom said it aimed to ship 5.6 bcm via Nord Stream 2 this year, but rose when that looked in doubt as approvals lagged. Whether or not those flows could now be sent via other routes is still uncertain.

“On the second quarter call, management stated that opening of the Nord Stream 2 this fall wouldn’t actually make much of a difference in export volumes, which implies redirection of existing gas flows,” said Ronald Smith, senior analyst at BCS Global Markets.

Any extra supply could help cool European prices, he said: “When under stress, such as now, a modest addition to supply could have an outsized impact on gas prices.”

But Gazprom might not have much room for manoeuvre. Smith said Gazprom’s production was already running near its peak of just over 1.5 bcm per day. The company does not provide monthly data.

Meanwhile, Gazprom’s storage in north-western Europe holds almost 70% less gas than a year ago, Refinitiv data shows.

This may mean Europe faces tighter times ahead. “We see a risk that, given Gazprom’s exceptionally low inventory levels in north-western Europe, the company would not be able to meet its contractual obligations during the winter,” Goldman Sachs said.

(Reporting by Katya Golubkova, Oksana Kobzeva and Vladimir Soldatkin in Moscow; Vera Eckert and Christoph Steitz in Frankfurt, Tom Kaeckenhoff in Duesseldorf, Nina Chestney, Susanna Twidale, Marwa Rashad and Dmitry Zhdannikov in London, Benjamin Mallet in Paris, Stephen Jewkes in Milan and Francois Murphy in Vienna; Writing by Katya Golubkova; Editing by Edmund Blair)

Source Link Russia’s Gazprom feels the heat over Europe’s red-hot gas prices