Author`s name Lyuba Lulko

USA losing gas competition in Europe to Russia

The United States is holding Europe hostage and losing natural gas competition on the European continent to the Russian Federation.

Gazprom generates price rise on the spot market

For the third month in a row, Russia's gas giant Gazprom refuses to use additional capacity to increase the supplies of natural gas to Europe, even though the latter desperately needs to replenish its fairly depleted reserves.

On Tuesday, June 29, at an auction in Hungary, Gazprom did not reserve the additional pipeline capacity for July through Ukraine at the Sudzha checkpoint, although the operator of the Ukrainian gas transportation system offered to book 63.7 million cubic meters of gas per day at a price of $0.71 per one cubic meter.

The news caused prices in the reference spot market in Holland to soar to their highest level since 2008, to about $400 per 1,000 cubic meters (pipeline gas costs an average of $200-300).

In July, the supplies of the Russian pipeline gas to Europe will be reduced even further due to the suspension of the Yamal (July 6-10) and Nord Stream-1 (July 13-22) pipelines for annual maintenance works. Meanwhile, the maintenance works of the Turkish Stream pipeline, which carries the Russian natural gas to Turkey and Southeast Europe (the works were scheduled for July 12-27) has been postponed until the new gas year 2021/22.

The rise in spot prices in Europe (by more than 65 percent this year) is also driven by:

  • fierce competition among Europeans for the commercially available LNG, as natural gas storage facilities in Europe are currently filled almost 25 percent below normal levels for this time of year;
  • constantly growing demand for LNG in Asia, where prices are higher — $465 per 1,000 cubic meters;
  • maintenance shutdown of Norwegian gas fields;
  • reduction of forecasts for the production of "green" electricity.

Sergei Pikin, the director of the Energy Development Fund, told Pravda. Ru that Gazprom was implementing its marketing strategy to make up for the last year's losses.

"Gazprom is not obliged to choose additional capacities under the contract with Ukraine's Naftogaz. It buys 15 million cubic meters per day on top of this contract anyway," the expert noted.

"The more heated the formation of winter reserves gets, the greater the demand, and the higher the price. Gazprom is making up for the losses of the previous year, when the gas price was ten times lower than it is now in June. Gazprom is not a monopoly on the European market (30 percent), but traders are very sensitive to its information, as they need to set up stocks as large as last year," said Sergei Pikin.

Spot gas will not replace pipeline gas

The United States, starting with the Donald Trump administration, has been trying to promote its LNG in Europe in every possible way. To accomplish this, the US launched a campaign against the completion of the construction of the Nord Stream 2 gas pipeline.

Over the past ten years, the West has relied on the instant (spot) market to transfer ownership of LNG consignments, thus causing political damage to the Russian pipeline gas supplied to Europe under long-term contracts. The growing liquidity of spot trading over the past few years has helped transform it into a truly global market. However, it later turned out that LNG production volumes were far from being sufficient — it has been bought out for many years to come, which made LNG even more expensive in comparison with pipeline gas.

As Bloomberg wrote, the industry is currently staying in the midst of the quiet period, with the next stream of new supplies coming not earlier than in the middle of the decade.

This once again shows the importance of pipeline gas transportation from Russia to Europe. It is likely to increase in the coming years, as gas fields in Norway and the UK are running out.

This is, of course, beneficial to Gazprom, which hopes to supply 55 billion cubic meters of natural gas to Europe through Nord Stream 2 per year. In addition, this transit will be cheaper than the transit through Ukraine, and Gazprom will eventually reduce it to a minimum. The same goes for transit through Belarus and Poland (the Yamal gas pipeline), which has not dropped below 37.7 billion cubic meters since 2015, except for the Covid-stricken 2020.

Yet, 2021 orders at 29.6 billion cubic meters are lower that the above-mentioned number by more than 8 billion cubic meters. It is indicative that this volume can already potentially be provided by the first string of Nord Stream 2, which was announced complete last week.

Gazprom is winning US-declared gas war

European consumers will not pay sky-high prices for gas and electricity, whereas the endorsement of expensive energy is prone with protests and political instability.

The urgent launch of the Nord Stream 2 gas pipeline will save the situation: it could provide the much-needed supplies to Europe and help the region avoid a crisis.