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Russia’s Gazprom feels the heat over Europe’s red-hot gas prices By Reuters



© Reuters. FILE PHOTO: The emblem of Gazprom firm is seen at the St. Petersburg International Economic Forum (SPIEF) in Saint Petersburg, Russia, June 2, 2021. REUTERS/Evgenia Novozhenina/File Photo

By Katya Golubkova and Vladimir Soldatkin

MOSCOW (Reuters) -Europe’s greatest gas corporations say the continent’s prime provider Gazprom (MCX:) is fulfilling its long-term contracts but the Russian vitality big stays at the centre of a dispute about whether or not it may do extra to ease the worth ache in a red-hot spot market.

The rocketing gas worth, with the European benchmark up virtually 600% this 12 months, fuelled by low inventories and surging demand in Asia and elsewhere as economies recuperate from the COVID-19 disaster, has put Gazprom in Europe’s crosshairs.

The Russian gas export pipeline monopoly, which provides 35% of European wants, insists it’s assembly contracted commitments – which prime European purchasers have confirmed to Reuters.

But European politicians, beneath stress from customers who face an enormous leap in winter heating payments, say Russia may provide extra and is utilizing the gas worth spike as leverage in a dispute over the Gazprom-backed Nord Stream 2 pipeline challenge.

“Eni is receiving from Gazprom all the quantity of gas which are nominated within the long-term contracts,” the Italian agency mentioned in emailed feedback, echoing statements despatched to Reuters by half a dozen different main European vitality corporations.

But European Union politicians nonetheless blame Gazprom for stoking the gas worth downside, saying it has not responded to surging demand by providing further volumes to identify market consumers, whereas they are saying Europe’s different large provider Norway has completed so.

“We are very grateful that Norway is stepping up its production, but this does not seem to be the case in Russia,” European Commission President Ursula von der Leyen mentioned on Tuesday.

EU parliamentarians need Gazprom investigated over attainable violations of competitors guidelines. They say it has not despatched extra gas in a bid to pressure swift approval for Nord Stream 2, the newly constructed pipeline that may ship Russian gas to Germany however which wants a greenlight earlier than pumping begins.

The challenge is opposed by the United States and a few European nations, saying it would make the EU much more dependant on Russian gasoline. Germany has caught with the plan however a closing nod should be months away.

SPOT MARKET SHIFT

Gazprom, which has no industrial obligation to produce Europe’s spot market, has mentioned it was assembly contracted obligations and beforehand warned Europe that counting on the spot market slightly than long-term offers would convey volatility. It declined to make additional remark to Reuters for this text.

Russian President Vladimir Putin mentioned on Wednesday that Russia was boosting provides and appearing as a dependable associate, however he mentioned the EU erred when it shifted in the direction of a spot market beneath steps taken years in the past.

Kremlin spokesman Dmitry Peskov mentioned: “As far as I know, Gazprom is in constant contact with its customers in Europe, all permissible additional supply requests are being met by Gazprom.”

Yet, it stays unclear how way more Gazprom can do to spice up provides, with its personal inventories working low, output already close to historic highs and Russia’s winter wants looming.

It can be not clear whether or not European corporations, with long-term contracts, have sought extra gasoline. When requested by Reuters, European vitality corporations Wingas and Engie mentioned that they had not requested for further gas, whereas Eni, Uniper, OMV and RWE didn’t elaborate other than saying Gazprom had met contracted commitments.

Two sources at Gazprom mentioned that they had not seen any requests for extra gasoline from spot consumers.

Gazprom figures present its exports outdoors the former Soviet Union rose 15.3% 12 months on 12 months in the first 9 months to 145.8 billion cubic metres (bcm). That contains to Europe and Asia, the place an financial surge has sucked in gas for energy technology and different makes use of, a lot of it in liquefied (LNG) cargoes.

Nord Stream 2 will add annual capability of 55 bcm.

There is, nevertheless, little apparent signal of Gazprom racing to pump extra to Europe’s spot consumers by way of current routes: it has solely booked a few third of transit capability supplied for October by way of the Yamal-Europe pipeline and no further transit capability by way of Ukraine.

“If Gazprom wants to book additional volume, there is plenty available,” mentioned Xun Peng, a gas analyst with Refinitiv. “The ones buying gas from the spot market are facing challenges as the current gas price is at a record high.”

CONSTRAINTS

Some spot market figures point out decrease Russian provides. Gazprom’s spot gross sales in Europe for same-year supply have been 0.5 bcm in July-September this 12 months in comparison with 3.1 bcm a 12 months in the past, when European economies have been nonetheless on their backs, mentioned Dmitry Marinchenko, senior director at Fitch rankings company.

“It is not fully clear whether Gazprom’s modest exports level is a result of production constraints at home or an attempt to ensure a stronger demand once Nord Stream 2 is up and running,” he mentioned.

European gas prices eased in August when Gazprom mentioned it aimed to ship 5.6 bcm by way of Nord Stream 2 this 12 months, however rose when that regarded unsure as approvals lagged. Whether or not these flows may now be despatched by way of different routes remains to be unsure.

“On the second quarter call, management stated that opening of the Nord Stream 2 this fall wouldn’t actually make much of a difference in export volumes, which implies redirection of existing gas flows,” mentioned Ronald Smith, senior analyst at BCS Global Markets.

Any further provide may assist cool European prices, he mentioned: “When under stress, such as now, a modest addition to supply could have an outsized impact on gas prices.”

But Gazprom won’t have a lot room for manoeuvre. Smith mentioned Gazprom’s manufacturing was already working close to its peak of simply over 1.5 bcm per day. The firm doesn’t present month-to-month information.

Meanwhile, Gazprom’s storage in north-western Europe holds virtually 70% much less gas than a 12 months in the past, Refinitiv information reveals.

This might imply Europe faces tighter occasions forward. “We see a risk that, given Gazprom’s exceptionally low inventory levels in north-western Europe, the company would not be able to meet its contractual obligations during the winter,” Goldman Sachs (NYSE:) mentioned.



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