Feb 22, 2021
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Gazprom has a holiday – Europe is frozen to the batteries

Pictured: a snowplow for the road cleaning service in Rostock in Mecklenburg-Vorpommern, Germany

Pictured: a snowplow for the road cleaning service in Rostock in Mecklenburg-Vorpommern, Germany (Photo: imago images / Fotoagentur Nordlicht / TASS)

The icy atmospheric front that covered Europe in February has led to the depletion of gas reserves in underground storage facilities, Gazprom said. According to the concern’s calculations, 55.5 billion cubic meters of gas have already been taken from the UGS, which is 27.6% more than last year.

“According to Gas Infrastructure Europe, gas reserves in European UGS facilities fell below 40%, although only 11 days ago the level was about 50%,” RIA Novosti is quoted as saying.

Gazprom also noted that the situation will have a positive effect on the demand for Russian gas.

Earlier Gas Infrastructure Europe reported that in the main gas market of Europe – in Germany – reserves decreased to 34.17%, in Austria – to 45.28%, the Czech Republic – to 41.08%, Poland – to 52.27%. The largest decline was in France – up to 30.07%.

How will the Russian concern use the “gift” from the Arctic?

– We know from open sources that European UGS facilities are filled by less than 40%, in France – even below 30%, – notes expert of the analytical portal Alexey Ilyashevich… – This is really a cause for concern. As practice shows, the mark of 50% is a psychological trait. But this does not mean that the EU countries can be left without gas. Simply practical Europeans consider it necessary to have a strategic reserve that will help them to hold out in the event of force majeure (for example, in the case of stopping the Ukrainian transit).

SP: – In 2019, the Europeans pumped a record amount of gas into the UGS. Plus, all this time Gazprom did not stop deliveries. And still not enough?

– I repeat, we are not talking about the fact that someone lacks gas. Enough for everyone. In February, there is always an acute shortage of energy resources. This time it is exacerbated by severe cold weather, which Europe may not have expected after last year’s abnormally warm winter. At the same time, LNG suppliers in December-January rushed to Asia, where the most favorable pricing environment developed. Gazprom also did not seek to increase physical gas supplies to Europe. Why is a separate question. As a result, the Europeans were forced to choose the reserves of their UGS facilities.

“SP”: – Which countries may face a gas shortage?

– I do not think that any European country will actually face such a problem. The same “Gazprom” is ready to increase transit through the Ukrainian GTS – there is enough free capacity there. True, you will have to pay for them separately, but if Europe will cover these costs, then why not? It’s a matter of price. Moreover, winter is already coming to an end.

“SP”: – How long will gas prices stay at high levels, can Gazprom count on solid benefits?

– Gas prices reached their peak in January. Now they are still tall, but they won’t be long. With the onset of spring, the situation may change again. Much depends on the situation in the Asia-Pacific region. When this market loses its attractiveness for LNG exporters, they return to Europe.

There is a version that Gazprom deliberately restrained the physical flow of gas to Europe in order not to provoke a quick collapse in prices. Which is more profitable – to take advantage of the situation now or balance supplies with an eye to spring? This question should be answered by the managers of the “national treasure”.

“SP”: – Can the US take advantage of the situation to promote its LNG?

– The USA, of course, tried to benefit. They didn’t even have enough tankers to transport LNG. But America was also covered with abnormal cold. Because of this, on the one hand, domestic consumption is growing, and on the other, wells and ports are freezing. Due to the “ice apocalypse”, the Texas authorities even limited the export of gas outside the state (and this also spurs price increases in Europe).

Russia does not face such a problem; it wants and can use the situation to fight off the catastrophic losses of the oil and gas sector in 2020. The only question is how to do it correctly.

“SP”: – How will this situation affect the Ukrainian transit?

– Ukraine can benefit if Russia purchases substantial additional capacities of the Ukrainian GTS, as it is written in the transit contract. Another question is that Gazprom is not eager to do this. Otherwise, he will have to answer an uncomfortable question: why was he unable to calculate in advance what transit volumes would be needed in the Ukrainian direction in 2021? Obviously, the Russian side assumed that by this time the Nord Stream 2 would be ready. That is why Gazprom contracted 65 billion cubic meters from Naftogaz for 2020, and for 2021-2024 – only 40 billion each.

SP: – How will this affect the prospects of Nord Stream-2. You can see that every time a cold winter comes, the Europeans begin to defend the project more zealously, but as the need decreases, their ardor diminishes …

– You’re right. The cold is always an argument in favor of Gazprom. But the controversy over Nord Stream 2 is too serious to be affected by the weather. There is no need to rely on the help of “General Frost”. Besides, I repeat, nothing terrible happened in Europe. There is enough gas for everyone, the underground storage facilities are simply exhausted. As they are exhausted, they will be filled.

“SP”: – The EU is constantly talking about the transition to “green energy”. Does the ardor also decrease during the cold winters? Or are they firmly resolved?

– Personally, the answer to your question became obvious to me after the EU did not refuse to finance the “green deal” in the midst of the economic crisis caused by the coronavirus pandemic. Whatever one may say, the rejection of “dirty” energy is a long-term European trend. The European Union will switch to renewable energy sources and will pay big money for this. The transition process itself may slow down or speed up, but it will not stop. Russia needs to, first, come to terms with this, and second, look for new opportunities for cooperation with a “carbon-neutral” Europe.

According to Deputy Director General of the Institute of National Energy Alexander Frolov, this does not happen often.

– The last winters have been quite warm. Plus, in 2019, record stocks were indeed accumulated, as everyone feared a breakdown of the transit agreement with Ukraine. By the current heating season, the savings were more modest. Here it is necessary to clarify that they are trying to quickly sell the gas accumulated in the storage facilities, since storage is not free. That is, at the beginning of the heating season, the storage facilities had less gas than a year ago. This is the main reason for such a large difference in stocks.

The second reason is cold. The third is low utilization of renewable generation. As an illustration: in February last year, gas-fired power plants in Germany produced 4.82 TWh, and in 19 days of February this year – 4.98 TWh.

SP: – Will the gas price continue to rise?

– Prices are already at a high level. For spot markets, it is normal to have high prices in winter and low prices in summer. So yes, prices will go down later, and that’s okay.

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