European Gas Crunch Far From Over, Gazprom Volumes Under Stress

European hope that potential new Russian gas exports could put a damper on higher price settings are diminishing, while the option of Nordstream2 volumes hitting the market soon are also unreal. Russian president Vladimir Putin’s remarks the last weeks that gas supply will be increased, put some relief in the market for a short while.

However, Moscow made clear that one major constraint to a normalization in the market is still the position of Nordstream2, the offshore Baltic gas pipeline connecting Russian gas fields with Germany. Due to an ongoing internal process the full scale operation of Nordstream2 is still a couple of months away before pumping starts to Germany, sources have said. Putin’s remarks that NOrdstream2 can be activated “the day after” regulatory sign-off makes clear that Moscow is using the current situation to pressure Europe to agree to Nordstream2 futures.

German authorities at present are still not completing certification of the disputed pipeline project, which according to Eastern European countries, especially Poland and the Baltic states, is increasing the Kremlin’s hold over European gas supply security. A possible delay of the certification of the pipeline could be until May 8 2022, if German authorities are taking all their available time. Putin’s cards are however strong, as European consumers and industry customers are being hit by major price increases, already causing a long-list of energy companies in the union to go broke.

Moscow however still denies that it is using its gas exports to Europe as an energy weapon of choice to force a Nordstream2 breakthrough. The new offshore pipeline would almost double capacity of the total Nordstream pipeline project. First moves towards a certification of the new pipeline have already been made.

The German Ministry of Economy stated in October that Nord Stream 2 poses no risk to the energy supply of Germany and the EU. Before the beginning of January 2022 Germany will be handing over a draft decision to the European Commission for review. A major conflict could still be on the table as European Parliament members have stated to EU Energy Commissioner Kadri Simson last month that Nord Stream 2 doesn’t conform with unbundling requirements.

Another threat on the wall is the fact that in-coming German Prime Minister Scholz could be facing major opposition to the pipeline by his possible government partners German Greens and Free Democrats. Both are vehemently opposed to the new project.

Gas exports via Yamal

At the same time Putin seems to have upped the ante again. Russia’s state-controlled gas producer Gazprom has declined to book more pipeline capacity via Ukraine and Poland to ship gas to Europe. The latter means no additional volumes are to be expected from that side in the first three quarters of 2022. A direct link is clear with Nordstream2, as a possible start of exports via the latter could be seen at the same time.

Putin also has made clear that extra export volumes to Europe are only available after that Russian gas storages are full, which is expected by November 8. The fact that no extra gas transit capacity however has been booked by Gazprom via Ukraine and the Yamal-Europe pipeline to Germany makes a potential volume increase soon very doubtful. Some new auctions are however still planned, but Moscow’s strategy is clear, at least to the insiders.

At the same time, during the weekend Russia has again cut additional volumes to Europe. In statements to the press, German transmission system operator Gascade reported that physical entry flows at Yamal terminus Mallnow had fallen to zero, and even began flowing in the other direction. It had not switched back as November delivery began.

Slovakian TSO Eustream stated that nomination data indicated its Velke Kapusany entry point for Russian supply via Ukraine was set to deliver just 43 million cu m/d, which is far below the prescribed capacity set by the Russia-Ukraine transit accord of December 2019.

 The Yamal gas pipeline traverses Europe

The Moscow energy weapon already has been successful, as shown in the Gazprom Moldova dispute. After pressuring Moldova to comply to Russian demands, a new deal was signed. Moscow terms did not only include gas issues, but also regional political and military issues in favor of Russia.

The overall European-Russian gas crisis is very clearly linked to geopolitics and market power. At the same time that Europe is struggling to get gas volumes in place, Gazprom stated, almost as a side-remark, that it has boosted production in October. In a statement, the Russian stated that all went to domestic market demand.

Its figures show an overall production of 42.2bn m³ in October 2021, up from 40.7bn m³ in October 2020 and 38.6bn m³ in September. This equates to 1.36bn m³/d, up from 1.31bn m³/d a year earlier. Domestic market supplies increased in October to 22bn m³ — or 711mn m³/d — from 17.1bn m³ — 552mn m³/d — a year earlier. First signs are that Gazprom domestic deliveries have stayed high in November. The company still needs to substantially increase its overall production to reach even its set target of 1.43bn m³/d, to hit the 510bn m³ the firm wants to produce in 2021.

Statements currently coming from Moscow about internal domestic market fundamentals and constraints in production have been used before. It however is very strange, to say the least, that at the same time Moscow is looking at a substantial increase of natural gas pipeline exports to China the coming years.

The latter, if not backed up by substantial higher gas production in Russia itself, Gazprom and others will not be able to supply to both sides, Europe and China. Geopolitical considerations are already showing a growing love relationship between Moscow and Beijing, the impact of the new Dragon-Bear cooperation will push Europe’s gas into possible new crisis again.