International showman Vladimir Putin was counting on a spectacular finale to the gas drama he has staged, with Russia delivering all the gas a shivering Europe wants – on the terms he wants. Now it’s becoming clear that this Greek-style “deus ex machina” won‘t work, that he won’t be able to honour his promises. Not now. Not in future. And it damages him.
At long last, Russian President Vladimir Putin seems to have grasped an essential truth – that sky-high gas prices are a mixed blessing for the Kremlin. They not only choke off demand in Russia’s key market, but undermine the long-term prospects for gas as a transition fuel, as consumers switch to alternative fuels. And this, in turn, is likely to have severe long-term repercussions for both Russia and its biggest gas producer, Gazprom.
Having got this, Mr Putin has been busily Saying the Right Thing – repeating on several occasions recently that Moscow is ready to play ball and help stabilise the global gas and energy market.
With some effect, it must be admitted. Following these Putin pronouncements, spot prices at various EU gas hubs obligingly dropped, for a short while, below the psychologically important (and, until recently, surreal) level of $1,000 per thousand cubic metres.
This was a striking and sudden reversal. But it’s not enough to warrant relief. And a further truth that Mr Putin may perhaps have realised by now is that Gazprom’s arm-twisting strategy doesn’t work, can’t work and may backfire. And that, in doing so, it will expose the limits of the Kremlin’s ability to play the role of Grand Arbiter on the European gas market – let alone at a global level – unless it allows EU market access to Russian gas producers other than Gazprom.
Trouble in store
That strategy was simple: reduce supplies to Europe and store more gas in Russia. And its flaw is equally simple. Mr Putin’s “alternative” pipelines – Nord Stream (NS-1) and the newer Nord Stream-2 (NS-2) – cannot replace Ukraine either as a supply route or as a Gazprom/EU storage hub.
A little background is in order. The cold winter of 2020/21 seriously depleted Russia’s underground gas storage facilities (UGS): at its end, a record total of almost 61 billion cubic metres (bcm) – equivalent to no less than 85% of capacity – had been withdrawn.
Gazprom is now busy replenishing stocks. By November 1, 2021, the company plans to have injected 72.6 bcm into domestic UGS since the beginning of the injection season, with the average daily injection flow rate above 330 million cubic metres (mcm). These volumes account for 25% of the daily gas production of Gazprom – which is roughly 1.4 bcm – and exceed by a substantial margin the supplies destined for the EU, which averaged 288 mcm per day in September this year.
This said, annual gas consumption in Russia averages 480 bcm. Even supposing domestic gas storage targets are met, they won’t be much reason for optimism if the winter turns out to be long and freezing.
These articles analyses and comments are made possible thanks to your empathy and contributions, which are the only guarantors of independence and objectivity in our work. The Alternatives and Analysis team.
Now, Gazprom claims it can produce and export more gas to Europe. But there’s no proof that increased exports, with the heating season on, could make up for the current low levels of gas in the region’s UGS facilities. The specialist website CelsiusEnergy.net, regularly compares current levels of UGS stocks with five-year averages (5YAs) – the average of the levels at the corresponding points in the preceding five years. On October 13, those in Germany stood at just 75% of the 5YA (a record low) while those in Slovakia, Romania and Bulgaria were even lower, at 73-74% – with Austria’s at a mere 57%!
The gas storage deficits can’t be compensated either by the “linepack” (the volume of pressurized gas already in the transmission system) or by a sudden surge in the volumes of gas piped via the Nord Stream (NS) or Turk Stream (TS) pipelines.
For, while the Russian leader was having fun flexing his geopolitical muscles over the energy-hungry EU, he overlooked an essential point: that Gazprom has undermined its most essential asset in securing uninterrupted gas supply for Europe in winter – namely, Ukraine.
The whole concept of NS and TS bypass was fundamentally flawed, since both pipelines provide baseload supply, but are unable to cover EU peak demand out of Russia. Furthermore, gas originating in Russian UGS facilities is not meant to balance anything except domestic peak demand. At current record-low levels of injected gas in Germany and Austria, the EU’s underground storages are unfit to cope with peak demand without Ukraine.
Gazprom’s management had toyed with the idea that it could use NS-2 to cover peak demand, as a substitute for Ukrainian and EU UGS, but this now seems an overplayed card. Ultimately, the company’s clients in Europe expect Gazprom, not Ukraine, to cover peak demand. In contrast to the situation in the 2020-2021 season, when Ukraine’s UGS stored 28.3 bcm of gas, current levels stand at 18.7 bcm, and Gazprom is pointedly absent from the scene. According to CelsiusEnergy, the total shortfall in stored gas in the relevant nine EU countries (the Netherlands, Germany, Italy, Austria, Slovakia, Czechia, Denmark, Romania and Bulgaria) exceeds 15 bcm – which should certainly set alarm bells ringing.
And which is where we came in. All this might help explain the recent change of mind in Gazprom, which is now offering to sell more gas via Ukraine. Mr Putin has promised too much, while strutting his stuff as World Gas and Energy Tzar, and now he seems unable to deliver and rebalance global energy markets or to mitigate a crisis which he so much enjoyed precipitating by “benign neglect”.
So he’s taken to whingeing out loud about the poor state of the Ukrainian transit system and about (actually rather trivial) gas thefts. If true, and if at all important, all that could have been taken to international court of arbitration. No, Mr Putin’s motives are quite transparent: his flawed bypass strategy has left his partners in the EU with emptied pockets, without sufficient gas reserves to weather the winter, so he’s belatedly seeking to absolve himself of responsibility for the current gas crisis in the Union.
As a result – perhaps not only in the EU – growing numbers of politicians are second-guessing Mr Putin and questioning his judgment on critical issues. His actions seem ever more irrational, short-sighted and against Russia’s interests.
And the limits of his power are increasingly being exposed.
Thank you for your donations via PayPal and bank transfers to IBAN BG58UBBS80021090022940