It is considered an off season. Winter hasn’t started yet. But natural gas prices have skyrocketed over the past few months, especially in Europe. The price of natural gas in Europe is now six times higher than last year. Across the continent, natural gas inventories are falling. On Wednesday, the benchmark Dutch gas futures price jumped 40% in morning trade to an eight-year high of €162.13 per MW, but then reversed course. Russian President Vladimir Putin assures supplies to Europe. But even after the day’s drop, gas prices in Europe remained twice as high as a month ago. And on Friday the prices started to bounce again. What is raising prices?
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lack of supply
From economic reform to geopolitics, many factors are attributed to the price rise. Global energy demand fell last year when economies slipped into COVID-induced lockdowns. When growth returned this year, especially for Asian economies, as demand picked up and energy producers struggled to meet rising demand, prices shot up. Even in the US, the world’s largest natural gas producer, prices rose from $1.7 per million British thermal unit on March 31 to $6.3 per MBtu on October 5, much higher than Europe, which is struggling to meet its energy demand. heavily dependent on imports, was particularly difficult. .
As part of Europe’s shift towards clean energy, many countries moved from coal to gas for electricity generation. This increased Europe’s dependence on gas. On the other hand, the continent’s natural gas production has plummeted over the years, as many countries have closed production fields over environmental concerns. If Europe’s natural gas production (excluding Russia) was about 300 billion cubic meters in 2005, it will drop to less than 200 bcm in 2021, according to Rystad Energy. Norway’s production, Europe’s main producer of natural gas, has fallen from 117.6 BCM in 2015 to 105.3 BCM in 2021. This has made Europe largely dependent on Russia.
energy geopolitics
As prices rose amid rising demand around the world and falling production in Europe, supply from russia A pipeline passing through Ukraine and Poland also shrank through, making the situation worse. Russia is building another gas pipeline, Nord Stream 2, that will take Russian gas directly to Germany, bypassing Ukraine and Poland, whose governments criticize the Kremlin. But supplies to Europe via Nord Stream 2 have yet to start as the pipeline awaits approval from European authorities.
In the past, when Europe’s energy demand increased, Russia increased the supply. But this year, Russia’s state-controlled energy giant, Gazprom, which supplies about 35% of Europe’s gas needs, has booked fewer additional exports than traders can expect, straining supplies. The International Energy Agency said this week Russian exports to Europe were lower than in 2019. This has fueled speculation that Mr Putin is using the energy crunch in Europe to win approval from the European Union for the Nord Stream 2 pipeline. Several countries in Europe as well as the United States remain critical of the pipeline, which they say will help Russia increase its advantage on the continent and allow Russia to financially punish Ukraine and Poland. US National Security Adviser Jake Sullivan told the BBC on Thursday that any attempt by Russia to take advantage of the crisis would backfire.
Putin’s assurance
The Kremlin rejected such criticism, saying that Russia had no role in the energy crisis. On Wednesday, Mr. Putin said the amount of gas flowing through the operational pipeline exceeds the volume agreed under Gazprom’s contract with Ukraine. He also said that Russia could “reach another record of delivery of our energy resources to Europe, including gas”. Due to this, there was silence in the markets for some time.
But Mr. Putin did not say how Russia was going to increase supplies through the existing pipeline or Nord Stream 2. Russian officials have already said Gazprom could send more gas to Europe if Nord Stream 2 goes online soon. It remains to be seen whether the additional supply will be linked to expedited approval for the pipeline. In addition, the Russian domestic gas market also remains tight. Inventories are running low, and winter is on the way, which will fuel demand that has constrained Russia’s export potential. And the demand is increasing not only in Europe and America but also in Asia. Coal shortages in India and China could push up natural gas prices further.
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