Nord Stream 2 approval may cool gas prices in Europe, says Russia

Deputy PM calls for rapid clearance from German regulator after prices reach an all-time high

Last modified on Thu 7 Oct 2021 04.08 EDT

Russia’s deputy prime minister has said certification of the Nord Stream 2 undersea gas pipeline, which is awaiting clearance from Germany’s regulator, could cool soaring European gas prices.

Prices have risen sharply in response to a recovery in demand, particularly from Asia, with storage levels low.

The price of Dutch wholesale gas for November, a European benchmark, has jumped almost eightfold since the start of the year and reached an all-time high of more than €150 (£125) a megawatt hour (MWh) in the early hours of Wednesday. It then fell to €114 by 3pm GMT.

“I think there are two factors, which could somewhat cool off the current situation. First of all, of course, this is, definitely, completion of certification and the fastest clearance for gas supplies via the completed Nord Stream 2,” Alexander Novak told a meeting of government officials and heads of energy companies.

Nord Stream 2, which runs on the bed of the Baltic Sea from Russia to Germany, is expecting certification from Germany, which could take a few months. The pipeline has faced resistance from the US, which says the project will increase Europe’s reliance on Russian energy.

Novak said an increase in gas sales on Gazprom’s electronic sales platform could also calm prices. The Russian gas group set up the ESP in 2018 for gas sales to Europe to supplement existing long and midterm contracts. It has suspended gas sales for delivery in 2022 since late August.

President Vladimir Putin, who chaired the meeting, has agreed with the proposed increase, adding that Russia should meet its domestic gas needs first.

Novak said some speculative trade could also be behind the soaring gas prices, which he said did not reflect the fundamentals of supply and demand.

Igor Sechin, the head of Russia’s state oil firm, Rosneft, asked Putin at the meeting for the right to export natural gas from Russia. State television did not air Putin’s reaction to the request.

Putin told the meeting that Europe was wrong to reduce the share of long-term deals in natural gas trade in favour of the spot market, where prices have surged. “We talked to the European Commission’s previous lineup, and all its activity was aimed at phasing out of so-called long-term contracts,” he said.

“It was aimed at transition to spot gas trade. And as it turned out, it has become obvious today, that this practice is a mistake.”

Gazprom has resisted moving to spot trade in Europe, preferring long-term deals that sometimes last about 25 years.

Putin also reiterated that Russia has been a reliable energy supplier to Europe, which may receive record-high Russian gas exports this year as Moscow is increasing gas supplies, including via Ukraine, in response to the energy crunch and stands ready to stabilise the market.

He said Russian gas transit via Ukraine was set to exceed volumes agreed under Gazprom’s contract with Kyiv.

Earlier on Wednesday, Putin’s spokesperson, Dmitry Peskov, said Russia had no role in causing Europe’s surging gas prices, following accusations from the International Energy Agency and some in the European parliament that Russia had not done enough to increase supplies.

“There are a couple of reasons [behind the gas crisis] – the way the economy is recovering, how demand for the energy resources is growing, as well as gas storages are not filled in,” Peskov told reporters.

Putin also cited economic recovery and cold weather in Europe, which led to a reduction in gas storage, as further reasons.

Peskov said Moscow was ready to discuss new long-term contracts for gas sales to European consumers and that Gazprom was meeting all its obligations.

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