Page 6 - FSUOGM Week 39 2021

FSUOGM COMMENTARY FSUOGM

How a V-shaped market and

ageing pipes and fields sent

gas prices soaring

Russia has been accused of cutting gas supplies to Europe to force the EU to
certify its new Nord Stream 2 pipeline, but most of the record-breaking prices

can be explained by steep V-shaped market forces and ageing fields

RUSSIA WITH the heating season officially due to start replaced by the relatively young fields in Yamal
next week, gas prices have soared and Russia has that feed the northern system of pipelines that
been blamed for it, accused of cutting supplies include Nord Stream 1 & 2 pipelines to Germany,
to Europe as a way of putting political pressure but with Nord Stream 1 already working at full
on the EU and forcing it to rapidly certify Rus- capacity and Nord Stream 2 yet to go into oper-
sia’s new Nord Stream 2 gas pipeline that cuts ation, the enormous reserves of gas in Yamal are
Ukraine out of the supply loop. unavailable during the current crisis.
The reality is a lot more complicated. Nord And it is not possible to divert gas from Yamal
Stream 2 does play a role but the main mecha- and the northern pipeline system to the central
nism at work on the prices is a sharp V-shaped pipeline system and on to Europe via Ukraine.
market where there was a gas glut in 2020 that There are interconnections, but the 40-year-old
depressed prices and led to record-high gas stor- central pipeline network has already been slated
age, exacerbated by the uncertainty of Russia for decommissioning and during the lead-up to
and Ukraine renewing their gas transit deal in the winter season the interconnectors are already
December 1999. at full capacity as Gazprom, like Europe, is rush-
However, a long cold winter at the start of ing to fill Russia’s domestic storage facilities with The problems of
2021, a hot summer (that drives up electricity enough gas to get through the winter: in Septem- gas supply have
usage and hence demand for gas) and various ber Gazprom had 25bn cubic metres in storage
maintenance and accident outages in the main out of the total of 75 bcm it needs during the cold been exacerbated
pipelines have all conspired to lead to extremely months.
low storage. By the end of the summer when Russia is suffering from the same supply and by the falling
it became obvious that gas storage levels were storage problems as Europe which has put added
going to be low going into the heating season pressure on its ability to supply Europe with gas. output at some
prices took off as the scramble to secure supplies Rather than cutting supplies, as bne IntelliNews of Europe’s
began. has reported Gazprom is currently producing
The problems of gas supply have been exac- record amounts of gas and exporting record biggest fields in
erbated by the falling output at some of Europe’s amounts.
biggest fields in the UK and the Netherlands, Taken all together, the falling production at the UK and the
which have passed their sell-by date. European and key Russian fields, the problems
With its massive reserves Russia has become of switching gas from the northern pipeline sys- Netherlands,
the main swing producer of gas for Europe, tem to the central one and the idle state of Nord which have
ramping up or cutting back supply as demand Stream 2 have combined to limit Gazprom’s abil-
changes. But in Russia too, the main mega-fields ity to act as the swing supplier, as it is running up passed their sell-
that have supplied Europe for decades have against its practical ability to increase production
passed maturity and are in slow decline, espe- or export volumes any further. by date.
cially the Cenomanian gas fields in Western The bottom line is: all the governments say
Siberia that feeds the central pipeline network there will be enough gas for the winter. Nafto-
that leads into the Ukrainian pipeline network. gaz announced that it is ready for winter with
Massive investments have been made into Cen- just over 18 bcm in storage – sufficient for the
omanian simply to maintain production at cur- winter and likewise Russia and the EU have also
rent levels. just about enough to get through; plus the EU
The falling output at Cenomanian has been has a fall back on LNG imports to make up any

P6 www. NEWSBASE .com Week 39 29•September•2021