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Russian supply restrictions increase pressure on European gas markets

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Executives and analysts said that Russia has exacerbated the shortage of natural gas supply in Europe by quietly restricting supplementary sales to customers, thereby pushing prices to 13-year highs.

Despite a sharp rebound in demand and low stocks of important fuels, pipeline natural gas exports from the Russian state-backed monopoly Gazprom to continental Europe fell by about one-fifth in 2021 from pre-pandemic levels. This imbalance has caused European prices to rise to their highest levels since 2008, increasing energy costs for households and businesses.

The price increase occurred during a period of turbulent relations between Russia and the West.On Wednesday, Russia said its troops Warning shot On a British destroyer off the coast of Crimea, it was claimed that Britain had denied this claim.At the same time, Germany and France are seeking to ease tensions with Russia this week, proposing New EU plan Have closer contact with Moscow.

Energy industry executives and analysts said that although Gazprom is fulfilling its long-term contract obligations, it is unwilling to increase its supply to Europe through more direct measures such as spot market sales, which puts pressure on the market.

An executive of a German energy company said: “With high spot prices, vacant gas storage and strong demand for LNG in Asia, Gazprom is just trying to maximize profits.” “They are just playing tricks. “

Gazprom said in a statement that it “supplies natural gas exactly according to consumer requirements.” “It is based on these requirements and the possibility of the company’s combined capacity optimization for booking transportation capacity in a particular direction,” it added.

Several industry insiders said that Gazprom’s move appears to be aimed at supporting prices and may be aimed at forcing EU government approval The controversial Beixi 2 pipeline To Europe.

Tom Marzec-Manser, ICIS Europe’s chief natural gas analyst, said: “Gazprom is actually telling the European Union: give the green light to the Beixi 2 project, and we will send you all the natural gas you need.”

“No, neither will we. We will not ship additional gas through Ukraine. You have seen what this means for wholesale prices in a global tension. [liquefied natural gas] Market,” he added.

Beixi declined to comment.

The nearly completed Beixi 2 pipeline has been subject to financial and legal sanctions from the United States and opposition from Eastern European countries, which they believe will increase Russia’s influence on continental Europe’s energy supply.

This pipeline crosses the Baltic Sea directly to Germany,
Also bypassed Ukraine, which relies heavily on gas transit fees
Come from Russia to support its economy.Russia supports a proxy war
Since Moscow annexed Crimea in 2014, Ukraine’s eastern territory.

Germany has always been a long-term supporter of the Beixi 2 project.After the Biden administration takes office, it will approve the launch of the pipeline later this year Exempt from additional sanctions Oppose the pipeline operator in a way that tacitly agrees that Washington will not be able to prevent its completion. But Germany’s September elections may boost the Green Party that opposes the pipeline.

Beixi Map

Ronald Smith, senior oil and gas analyst at BCS Moscow, said: “We can say that Gazprom does not seem to be in a hurry to provide additional non-contractual agreements. [gas supplies] Through Ukraine. “

Murray Douglas of consulting firm Wood Mackenzie said he was surprised that Russia did not start increasing exports through Ukraine earlier this year, but believes Gazprom’s position may be more subtle.

“In the years before Covid, Gazprom was building its market share in Europe and providing what it needed, but today it may be more complicated to send large quantities of goods through Ukraine,” he said.

Analysts said that Gazprom’s position was not the only reason for the price increase, but it exacerbated the increase. The cold winter has reduced European natural gas storage to its lowest level in nine years, and the demand for utilities to burn natural gas instead of coal has been boosted by the European Union’s carbon allowances rising to more than 50 euros per ton.

Global natural gas supplies are tight as more LNG cargoes are shipped to Asia instead of Europe. But Russia is seen as a country with enough spare capacity to curb the rise.

Analysts say that restricting sales in the spot market is very different from Gazprom’s past practice of providing as much natural gas as possible according to customer needs. Russia’s strategy may evolve into a more OPEC-like oil production cartel, with which Moscow has been cooperating to manage oil supply and support prices since 2016.

Elena Burmistrova, Gazprom’s export director, denied that the strategy had changed last month, but admitted that there was a demand for increased exports. She said in May that with the “opening of the Beixi No. 2 natural gas pipeline”, the company will “be able to provide additional demand.”

Marzec-Manser of ICIS stated that he believes that Gazprom is “using the global supply situation to try to get the results they really want.”

“They could have solved this problem, but they chose not to. When the price is so high, it’s hard to say that the additional cost of shipping through Ukraine is too high. It makes the industry realize that something more strategic is at work. .”

Additional reporting by Henry Foy in Moscow and Nathalie Thomas in Edinburgh

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