December 7, 2023

An exit filtration system for a gas processing plant at the Slavyanskaya compressor station (operated by Gazprom), the starting point of the Nord Stream 2 offshore natural gas pipeline. According to Russia’s Deputy Prime Minister Alexander Novak, construction of Nord Stream 2 should be completed this year.

Peter Kovalev | TASS | Getty Images

LONDON – Russia has slowed the supply of natural gas to Europe in recent weeks, according to an analysis by ICIS, a commodity intelligence service, raising questions about the possible causes of the decline and its impact on global gas markets.

It comes shortly after Chancellor Angela Merkel tried to allay longstanding concerns about the near-completed Nord Stream 2 pipeline by saying that further sanctions could be imposed if Moscow used gas “as a weapon”.

The controversial project is intended to deliver Russian gas directly to Germany via the Baltic Sea, bypassing Ukraine and Poland.

Critics argue that the pipeline is incompatible with European climate targets, increases the region’s dependence on Russian energy exports and will most likely strengthen the economic and political influence of Russian President Vladimir Putin on the region.

Europe will be like a frog in boiling water, not realizing that it is in trouble until it is too late.

Kristine Berzina

Senior Fellow at the Alliance for Securing Democracy

Some analysts have suggested that Gazprom, Russia’s state-owned gas giant, may curtail its supply of freely available natural gas to Europe in support of its case for starting gas flows via Nord Stream 2.

“This is because Gazprom is preparing for the launch of Nord Stream 2 and is hoping to leverage it to ensure that this process happens as quickly as possible if all regulatory requirements are exceeded and punctured.” ”Tom Marzec-Manser, senior European gas analyst at ICIS, told CNBC over the phone.

“Having less gas around than normal and the price is high can streamline that process,” he added.

When asked to comment on Gazprom, CNBC referred to a statement posted on its Telegram account on August 16. The company described August as “another ‘winter’ month on the gas market,” according to a translation.

An increased load on the gas supply system coincided with the traditional season of planned preventive maintenance and preparation for the autumn to winter period, “which cannot be interrupted,” said Gazprom.

“The practice of recent years in both Russia and Europe suggests that the winter period has also shifted to the spring month of March, Company said. “This is also very well understood by our European colleagues.”

What’s happening?

The flow of natural gas at the westernmost point of the Yamal pipeline – a strategically important 2,000-kilometer pipeline that runs through four countries: Russia, Belarus, Poland and Germany – fell to 20 million cubic meters per day in mid-August, according to ICIS. That was a decrease of 49 million cubic meters per day at the end of July and a sharp decrease from the typical value of 81 million cubic meters per day.

In addition, European natural gas supplies from Russia are expected to decline even further in September.

Marzec-Manser said that in order to move gas through neighboring energy community states like Ukraine, Russia must first buy access to a pipeline, “like a toll road”. The Nord Stream 1 route is an option, although Gazprom already owns it and is busy. The Yamal Pipeline is a second major route and was expected to be almost full by the end of July.

“Third, you have the Ukrainian route, which of course brings a lot of political baggage,” he continued. “It’s the only other way to get any significant amount of gas from Russia to Europe.”

Gazprom is generally using its booked EU pipeline capacity efficiently, Marzec-Manser said, but an unexpected drop in volume along the Yamal pipeline at the end of July “immediately indicated that something was wrong”.

After a fire in a condensate plant in the Siberian city of Novy Urengoy, natural gas flows to Europe ceased shortly afterwards.

As a result, outside Gazprom monitors closely monitored the auctions of interruptible monthly capacity across Ukraine. These auctions are generally seen as an important signal to the market for volumes ahead, as they take place two to three weeks before the month that natural gas is flowing.

A series of no-shows at every auction prompted analysts to question whether the lack of capacity bookings via Ukraine had anything to do with Gazprom’s inability to deliver as well as its unwillingness to deliver.

“If that’s true, it will have serious implications for it, like global gas and LNG [liquefied natural gas] Markt deals with the Russian pipe volumes and the availability – or not – of its discretionary supply, ”said Marzec-Manser.

Another theory, believed by analysts to be a little less likely, is that because Gazprom believes Nord Stream 2 will soon be fully operational, it may not need to book additional capacity elsewhere.

Workers are seen at the construction site of the Nord Stream 2 gas pipeline near the city of Kingisepp in the Leningrad region, Russia, June 5, 2019.

Anton Vaganov | Reuters

Valentina Bonetti, senior gas analyst for EMEA at S&P Global Platts, told CNBC that the company views the recent decline in Russian flows to Europe “as a result of an upstream physical problem” that is taking longer than expected to fully return .

“Gazprom has long prided itself on being very reliable and quick in restoring supplies after accidents,” said Bonetti. However, she argued that the company’s recent move to a “value-over-volume” strategy tested the company’s ability to restore natural gas flows and put pressure on the EU to allow Nord Stream 2 to get off to a smooth start.

While Gazprom is currently producing over the five-year range, Bonetti needs considerable amounts of gas both for domestic storage infeeds and for significantly higher exports to Turkey compared to the previous year. This “could tighten their value-over-volume strategy for exports to Europe”.

S&P Global Platts anticipates that Russian flows to Europe will gradually recover in the coming weeks and expects the Nord Stream rivers to begin in October.

Record high gas prices

European gas market prices have soared more than 116% since the start of the year, with the ICIS TTF benchmark closing at an all-time high of 47.86 euros (56.17 US dollars) per megawatt-hour on August 16, with Europe included is confronted with incredibly low natural gas storage facilities and the Asian and South American LNG demand is picking up again.

The contract last traded for around € 43.2 after Gazprom reportedly plans to deliver 5.6 billion cubic meters of gas to Europe this year.

“The current decline in gas deliveries and the increase in withdrawals, which is increasing gas prices across Europe and benefiting Moscow, is primarily a commercial tactic to help Russia at a time when global gas demand is high,” said Kristine Berzina, a Senior Fellow at the Alliance for Securing Democracy, a national security advocacy group. “But it also shows Europe how dependent it is on Russia for gas.”

Chancellor Angela Merkel will give a joint press conference with the Ukrainian President after her talks in the Mariinsky Palace in Kiev on August 22, 2021.


Berzina said it was “remarkable” that Merkel threatened sanctions if Nord Stream 2 was used as a weapon, but asked how Germany or Europe would determine this.

“Is a slow rise in gas prices with geopolitical underpinnings seen as a ‘weapon’? … Or are only dramatic shutdowns seen as a ‘weapon’? “

“Europe will be like a frog in boiling water, not realizing that it is in trouble until it is too late,” said Berzina. “Russia has a lot of leeway to create scenarios that are painful for Europe but do not exceed critical thresholds. This would be both financially and politically beneficial for Russia.”