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Keep Calm and Blame Russia - Gennady Nechaev

One of the main questions that possess the minds of energy market players and ordinary citizens in Europe during the current period is unprecedently high gas prices on the gas hubs. Some experts claim that the reason for such a situation is a "perfect storm" that is being observed in 2021 on the market.

Among the factors there are:

- unusually cold winter that caused the depletion of gas storages throughout Europe;

- a harsh competition for the gas supplies between Europe and Asian countries;

- insufficient investments into upstream gas projects all over the world in the previous period;

- consecutive cuts in production on the Dutch Groningen gas field;

- lowered production on the Norwegian and UK fields due to the maintenance works;

- Russia’s limited ability to supply gas to Europe due to the problems in production and new regulations on the domestic gas market according to which Gazprom is from now on obliged to connect to the gas grid any citizen of Russia who demands it for free, until this moment this procedure was considerably expensive.

From another point of view, every problem of the Western World and Europe particularly is caused by “the Kremlin’s hand." Analysts who promote this idea couldn't stay away from the gas price crisis as well. According to their conception, it was the cunning Russians' game that caused the gas cataclysm in Europe. The main accusation of those experts is that Gazprom has been utilizing its “gas weapon” by providing natural gas-only within the limits of the contract quantities and refusing to provide exceeding volumes. This strategy, according to the experts, has a goal of getting more profit from the high prices and applying political pressure on the EU to make it approve the certification of the newly finished Nord Stream 2 gas pipeline project, because of which Russia and Gazprom particularly were hit by sanctions from the US.

First of all, high natural gas prices, be it in Europe or on any other Gazprom market, are not profitable for Gazprom, which sells its gas mostly by means of long-term contracts, in any way. Extremely high prices harm the gas trade by slowing down the market activities. On the one hand, gas selling companies go bankrupt because of their inability to sell gas for the current prices, and on the other hand, consumers not being able to afford this expensive source of energy tend to switch to different sources such as coal and “green energy” or go bankrupt as well. In order to improve the situation, Gazprom has been applying efforts to provide more gas to the EU. In his last interview on October 28, 2021, the Chairman of the Gazprom board of directors, Viktor Zubkov, revealed that the company had supplied an additional 11 bcm to Europe in 2021.

Second, as it is widely known, Gazprom and its partners (ENGIE, OMV, Royal Dutch Shell, Uniper, and Wintershall) have invested billions of dollars into the Nord Stream 2 project, which did not meet any considerable resistance at the beginning and faced powerful opposition from the US later. At the end of 2019, the US imposed sanctions on the construction companies participating in the project; in October 2020, the State Department announced new sanctions that affected sub-contractors as well. Keeping in mind all the difficulties and obstacles that were overcome by the project, it is quite normal that Gazprom wishes to finish all the formalities as soon as possible, but it does not mean that Russia has created a critical situation on the gas market to make Europe approve it, thus, as was mentioned above, it would be a shot in its own leg.

An important issue that probably has made the current gas price levels even possible was the exceedingly fast liberalization of the EU gas market by abandoning long-term contracts in favor of focusing on the gas trade on exchanges. It has led to some important consequences. As Russian President Putin commented on October 6, "sharp and thoughtless actions can and already lead to serious disbalances."

It is quite normal for any commercial enterprise to wish to become a monopoly, and it is as well normal for an authority of a country to prevent commercial enterprises from becoming a monopoly. In the case of Gazprom, more than enough was done in this regard. The Third Energy Package has restricted Gazprom's ability to influence the gas market even more than the previous regulations.

Coming to the US, while imposing sanctions on the project US Energy Department has promised to flood Europe with its "freedom gas" that will compensate the gas that will not flow through the Nord Stream 2 pipeline. Today we observe the situation when the American gas, containing "the molecules of US freedom," goes to the places where it can be sold for a higher price and not to suffering Europe. As Amos Hochstein, Senior Advisor for Global Energy Security, claimed on October 25, 2021, "the US Government does not direct our companies in who they sell to… I don't think that the US Government has much that it can do more than it has already done." And what it has done was that it applied all possible efforts to eliminate additional sources of gas supplies to Europe and didn’t provide any replacement. One may wonder why the day the US is not blamed for the current crisis. Perhaps it is much easier and safer to blame Russia.

There are some other examples of not fulfilling obligations from countries far less powerful than the US. It concerns the natural gas trade between Turkey and Iran. Almost every winter Islamic Republic cuts a major part of its gas supplies to Turkey when there is a lack of gas on the domestic market. Here we do not hear any criticism from the world press, perhaps because, among interested bodies, there are no such countries as Ukraine or Poland.

It is difficult to explain, but some countries actually believe that Russia and Gazprom particularly are obliged to supply its natural gas to any country that needs it regardless of whether the country pays for it or not. It is the case of Moldova that owes Gazprom 700 million USD for the gas that was supplied earlier. Russia here is blamed for not continuing to supply the country despite the debts. One might ask why Gazprom did not claim its debt before at the time when the President of Moldova was Igor Dodon, a pro-Russian politician. The answer is on the surface: a country obviously should not sponsor a clearly unfriendly state. It is applicable to Ukraine, Poland, and other states like this. This approach is being practiced all over the world.

One more example concerns Ukraine. It is widely believed by biased analysts that Russia utilizes its gas weapon against this country. The problem here is old-fashioned belief coming from the USSR that Russia must feed all the neighboring countries. It is true that Russia was subsidizing Ukraine while there was a friendly government. After the accession of the new pro-American regime, such philanthropy became unnecessary. Still, the gas prices for Ukraine were reasonable until it refused to buy gas from Russia and started buying Russian gas from another source.

Global media has a habit of blaming Russia for using its energy weapons, but also there is a great range of objective experts who are aware that Russia is one of the most reliable suppliers of energy sources in the world. There are strict contracts that are being fulfilled with pedantic accuracy. Owing to international media sources, Gazprom has a controversial reputation in Europe, and the company is doing everything not to give anyone an opportunity to blame it relying on the real facts.

PS Concluding the article, one more interesting question: will Russia be able to get rid of the claims of some countries to provide free or nearly free sources of energy when one day it will become carbon-neutral by means of production of hydrogen or any other green source of energy?


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