Russia hopes for a U-turn in the EU’s energy policy

A Gazprom plant (Source: Flickr) 

International, Russia

Article by: Mateusz Kubiak, The Jamestown Foundation
Edited by: A. N.

On October 6, Vladimir Putin held a publicly broadcasted meeting with Russian oil and gas industry representatives, discussing the skyrocketing global natural gas prices (Kremlin.ru, October 6). As expected, it focused on the dramatic situation in the European Union (EU), where numerous countries enter the heating season with insufficient gas stored. An increasing number of companies are forced to halt production or close their businesses. Unsurprisingly, the Russian government is trying to make an impression that it can rescue Europe from power outages during the winter. At the same time, its goals also look clear: secure regulatory approvals for the Nord Stream Two pipeline and change the EU’s stance on the long-term gas contracts and pace of green transformation.

The current situation in the European market is unprecedented. Both natural gas and electricity prices have soared dramatically to levels never been seen before—almost ten-fold higher for natural gas (Finance.yahoo.com) or three- to four-fold higher for electrical power than a year earlier (Eex.com). Thus, the market is also extremely volatile, and some companies are forced to limit or stop their business activities. Most affected are fertilizer producers, dependent on natural gas-derived ammonia, and energy utility companies.

The crisis is often explained as an effect of Russia’s reluctance to boost gas supplies to Europe, but the reality is much more complex. On the one hand, the current imbalance is caused by many other factors: post-pandemic recovery demand in Asia, low storage levels after the previous winter and the rising costs of carbon emissions allowances in Europe stimulating the closure of the coal-fired thermal plants. On the other hand, it also might be true that Gazprom does not have enough natural gas to offer to the European market at the moment.

According to official press releases (Gazprom.com, October 1; Kremlin.ru, October 6) and media calculations (Bloomberg.com, September 23), Gazprom’s production level this year is at its highest for a decade. But “extra” volumes are directed to the domestic market to replenish Russian gas inventories after the past winter. Therefore, analysts and traders predict that Gazprom would only boost its supplies to the EU after completing its domestic gas storage, probably by the beginning of November (Interfax.ru, October 7). However, whether and under what conditions this will happen remains uncertain. Vladimir Chizhov, Russia’s permanent representative to the EU, suggested that Gazprom would increase gas flows to Europe. But he also warned that the EU should “change ‘adversary’ to ‘partner,’ and things get resolved easier” (Ft.com, October 10). Thus, it seems that Russia will seek not only additional gas sales but also other advantages.

First, undoubtedly Russia would exert pressure to allow Nord Stream Two operations, although the regulatory proceedings are still pending and there are plenty of spare capacities on the Yamal and Brotherhood transit gas pipelines through Belarus/Poland and Ukraine, respectively. For now, Gazprom-owned Nord Stream AG has ultimately secured technical certification approvals and has already started filling one of the Nord Stream Two strings with gas (Ens.dk, October 4; Nord-stream2.com, October 4). But the pipeline still lacks market certification by the German regulator and the European Commission (see EDM, September 14). As a result, the Russian Minister of Energy, Aleksandr Novak, openly stated that the “fast-track approach” to Nord Stream Two should be necessary to stabilize prices in Europe (Ria.ru, October 6).

Secondly, maybe even more importantly, Moscow uses the moment of crisis to lobby for changes in the EU’s energy policies. Russian decision-makers and diplomats openly state that the EU was mistaken in promoting spot and short-term contracts over long-term delivery agreements (Ft.com, October 10; Kremlin.ru, October 6) and that the European approach to the “green transformation” is too radical (Vedomosti.ru, October 5). This winter, such arguments could fall on fertile ground in some European capitals if the gloomy scenario of power outages materializes. If that happens, Russia’s energy companies will be the winners.

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Edited by: A. N.

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