Page 6 - GLNG Week 25 2021

GLNG COMMENTARY GLNG

Gazprom reportedly

withholds gas supplies to

drive up European prices

Gazprom is reported to be intentionally withholding gas supplies

to drive up prices in Europe, potentially in a bid to make sure the
Nord Stream 2 pipeline is brought online

PROJECTS & RUSSIA’S Gazprom is exacerbating shortages on This marks a key shift in strategy for the Rus-
COMPANIES the European natural gas market by withholding sian giant, which has traditionally focused in
extra supplies, the Financial Times reported on expanding its market share at all costs rather
WHAT: June 24. than maximising revenues. Its new policy mir-
Gazprom is intentionally Europe’s gas market has grown unusually bull- rors that of Russia and its OPEC+ partners, who
withholding gas supplies ish in recent months, with spot prices recently have reined in oil supply over the past year to
to drive up prices in surging to $360 per 1,000 cubic metres, which push up prices.
Europe, according to the is unusually high, especially for summer, when Naturally, Gazprom alone is not responsible
Financial Times. there is little need for heating. In fact, the recent for the bullish conditions that have appeared
heatwave has driven up electricity demand for on the European gas market. Besides the cold
WHY: cooling purposes. Prices were already unusually winter and hot summer, demand has been bol-
The strategy makes high at the end of winter, after several months stered by the rising cost of EU carbon allow-
commercial sense, of cold temperatures and restricted LNG sup- ances, which have grown to €50 ($60) per tonne,
although some industry ply. They are now at their highest point since encouraging utilities to switch from coal to
participants have 2008, weighing down on the post-coronavirus cleaner gas-burning power generation.
suggested that Gazprom (COVID-19) economic recovery. The gas market is also tight in Asia, where
is putting pressure on the But while Gazprom has plenty of spare pro- LNG spot prices are traditionally at a premium
EU to let Nord Stream 2 duction capacity to meet soaring demand in to those found elsewhere. This has encouraged
go ahead. Europe, its pipeline exports to the continent LNG exporters to divert more shipments away
have instead dropped by roughly one fifth in from Europe and towards Asia. The gas market
WHAT NEXT: 2021 versus the pre-pandemic level, according The spike in gas prices is obviously bad news
While the Biden to the FT. Gazprom is abiding by its contractual for European economies, undermining the is also tight in
administration appears to obligations, energy executives and analysts told post-pandemic recovery. And the shortages Asia, where LNG
have eased its position on the newspaper, but it is reluctant to increase may also jeopardise energy security during the
Nord Stream 2, multiple volumes further through spot market sales. The next winter. spot prices are
obstacles could yet derail company could simply be acting out of business Gas prices are typically higher in winter and
the controversial pipeline sense. Why send more gas if doing so will push lower in summer, giving companies an incentive traditionally at a
project. prices down and result in fewer earnings? to store more volumes during the hotter months
“Gazprom is just trying to maximise its profits of the year. But this year is anything but typical, premium to those
at a time when spot prices are high, gas storage is owing to the continuing impact of the coronavi- found elsewhere.
empty and LNG demand in Asia is strong,” one rus. With companies having no reason to with-
executive at a German energy company told the hold gas from the market and place it in storage,
FT. They’re just being opportunistic.” European storage utilisation is at an unusually
Gazprom has denied having such an agenda, low level.
issuing a statement saying it “supplies gas pre- Worse still, prices could climb further in the
cisely in line with consumers’ requests.” coming months as Gazprom closes some of its
“It is based on those very requests as well as export pipelines for scheduled maintenance in
the possibilities for portfolio capacity optimi- June and July. TurkStream is already offline for
sation that the company books transportation repairs, and will not return to operation until
capacity in particular directions,” Gazprom June 29. Meanwhile, Nord Stream 1 is due to halt
said. shipments between July 13 and 25.

P6 www. NEWSBASE .com Week 25 25•June•2021