Russian President Vladimir Putin will deliver “an informative and very important speech, followed by a plenary discussion” Wednesday in Moscow during Russian Energy Week, an international forum on the global energy sector.
Expectations are high in energy circles in Europe and America. Europe is experiencing an energy crisis with booming demand and limited supply triggering pressure on gas prices. Last Wednesday, Putin offered to increase gas supplies from Russia to Europe.
The question has enormous geopolitical implications. Putin’s offer dramatically demonstrated that Europe is heavily dependent on energy supplies from Russia. Of course, nearly 90% of the bloc’s supplies are imported, with Russia being one of the main sources of imports along with Norway. Russia represented more than 43% of all extra-EU gas imports in 2020.
Admittedly, the recent surge in the prices of natural gas – and more generally of raw materials such as petroleum and coal – is undoubtedly not the creation of Russia. Several factors are fueling the price spike – demand surge as economies resume operations and consumers resume pre-pandemic activities; the inability of producers to increase production after suffering heavy trade losses during the unprecedented recession of 2020; depletion of European gas stocks due to the colder and prolonged winter of 2020; the shortcomings of the renewable energy industry; rushing for natural gas while moving away from coal-fired power plants because of expensive carbon offsets; continued decline in gas production in Europe, etc.
In fact, Europe is not the only place facing a supply shortage. Asian demand is also surging. In some cases, cargoes bypass Europe for Asia, where they get better prices!
Paradoxically, Russia is ready to negotiate new long-term contracts for the sale of gas. But Europe has preferred to reduce the share of long-term deals in natural gas trade and instead move to the spot market (where prices are now at record highs.) Putin said last week during a meeting with Russian officials,
âThe practice of our European partners has once again confirmed that they have made mistakes. We spoke to the previous line-up of the European Commission, and all their activity was aimed at phasing out so-called long-term contracts. It aimed at the transition to the spot gas trade. And it turned out that it has become evident today that this practice is wrong.
In his speech tomorrow, Putin could probably reiterate his offer to increase Europe’s gas supply. But it may also involve early certification of the Nord Stream 2 gas pipeline by Germany. Without a doubt, German certification of the controversial pipeline could help cool prices.
But then the battle over Nord Stream 2 also happens to be a sort of proxy war between the United States and Russia, with the two vying for market share in the European region – Russia with its natural gas supply. relatively cheaper via pipelines and the United States. with its more expensive liquefied natural gas.
In addition, Ukraine stands to lose as its own pipelines are bypassed by Nord Stream 2 and it will be deprived of billions of dollars in gas transit charges. Poland is also opposed to Nord Stream 2, fearing that the pipeline will only serve to strengthen Russia’s ties with Europe. And Ukraine and Poland are the main allies of the United States against Russia.
Washington laments that Nord Stream 2 strengthens the German-Russian energy link if a swift certification for Nord Stream 2 is forthcoming while Angela Merkel is still in office as German Chancellor.
The United States has long opposed the $ 11 billion Nord Stream 2 project, which the Russians completed to Washington’s chagrin, given its enormous potential to bring more Russian gas to Europe via the Baltic Sea.
The US game plan is to work behind the scenes to delay certification of Nord Stream 2 until Merkel retires, and then get the EU to insist that the operation of the pipeline must be integrated into the framework of the third energy package, a set of rules promulgated by Brussels in 2009 aimed at increasing competition and transparency.
The catch is that as it stands, it is not clear whether Russia will comply with these EU regulations which call for the separation of production and transport operations.
Now, with an energy crisis on the doorstep, the EU may well decide to quickly grant technical and regulatory approvals so that Nord Steam 2 can immediately go into commercial operation and a greater flow of Russian gas to the European market can. start before winter. , which should also be particularly severe this year.
Natural gas prices have climbed 600% so far this year and the current extreme volatility in the market is also hitting key economic areas across Europe.
The main problems for Washington are as follows: First, the United States would have liked the Nord Stream 2 to become operational in a post-Merkel Germany where Gazprom is closely bound by EU rules and anti-monopoly regulations.
Second, Russia’s importance as a strategic supplier to Germany is increasing following the German government’s decision in 2011 to remove nuclear power from its energy mix. Base electricity previously produced by nuclear power plants, currently supplied by lignite-fired power plants, is expected to be replaced by natural gas imported from Russia via the Nord Stream gas pipeline.
Overall, Washington fears that Russia’s dominant position will strengthen further, which could constitute a significant constraint for the Western alliance in times of confrontation and pose a risk to Allied cohesion.
Finally, the market approach and transparency of the EU and its third party access rules act as a brake on the exceptionalism of Germany and France within the group. This is particularly important in the post-Brexit context. Interestingly, in the midst of all of this, Putin had a three-way phone conversation on Monday with Merkel and French President Emmanuel Macron to discuss the conflict in Ukraine and “other international issues.”
This is a high stakes face-to-face. Moscow can afford to sit still and insist that certification of Nord Stream 2 will ease the energy crisis – in fact, wait until its application for fast-track certification is granted.
Courtesy: Indian punch