Russia’s energy blackmail is running out of gas – for now – POLITICO

Russia shut down the Nord Stream undersea gas pipeline to Germany for three days from Wednesday and … gas prices actually plummeted.

The price of gas on Dutch benchmark hub TTF traded at €241.50 per megawatt hour on Wednesday, down from €265.33 on Tuesday and well below Friday’s record high of €346.52.

This is a sign that EU efforts to diversify supplies, reduce consumption and rapidly fill gas storage before winter are having an impact on the market. The bloc’s gas storage is over 80%, a level the EU had mandated for November 1.

« Let’s continue to fill where the level is even lower and implement the #EU demand reduction plan. This will help us get through the winter safely,” tweeted Kadri Simson, European Commissioner for Energy.

Germany’s own storage facilities are 83% full.

« The government has prepared for a situation in which gas from Russia no longer flows reliably, » tweeted German Chancellor Olaf Scholz. « That’s why we were able to react quickly and fill the gas storages for the winter. »

Russia is also pressing other customers. Before the three-day shutdown, Gazprom had limited Nord Stream to a fifth of its normal capacity and cut or halted deliveries to a dozen EU countries. He said he would halt deliveries to Engie in France from Thursday due to a payment dispute.

Even without the complete shutdown of Nord Stream, deliveries from Russia to the EU are well below last year’s level, when they accounted for 40% of the bloc’s gas supply. Last week, Russia sent 856 million cubic meters to the EU, down 68% from the same period in 2021, according to think tank Breugel.

« Russia uses gas as a weapon of war, » French Energy Transition Minister Agnès Pannier-Runacher said on Tuesday.

Politics plays a big part in who gets the gas. Hungary, one of the few defenders of the Kremlin in the EU, announced on Wednesday a new agreement to buy more Russian gas.

« Hungary’s energy supply is secure », said government spokesman Zoltán Kovács.

Concerns remain

The lack of a panicked market reaction to Russia’s shutdown of Nord Stream for maintenance – a claim that Western European politicians have disputed – does not mean the Kremlin halting deliveries will have no consequences.

« The situation is tense and a further worsening of the situation cannot be ruled out. The gas supply in Germany is, however, currently stable, » said the Bundesnetzagentur, the German network regulator.

Even at Wednesday’s slightly lower levels, gasoline prices are still about 10 times higher than a year ago. This is reflected in electricity prices through the design of the EU electricity market, where the final input needed to balance demand – usually gas – sets the price for the whole market.

« Wholesale prices have risen sharply recently and remain at very high levels, » the Bundesnetzagentur warned. « Businesses and private consumers should expect a considerable increase in gas prices. »

EU energy ministers will meet on September 9 to discuss the situation and are expected to consider short-term measures to bring prices under control as well as a longer-term overhaul of the structure of the energy market of the block.

The German government is bracing for a lot of pain this winter, which Economy and Climate Minister Robert Habeck made clear on Wednesday. Measures will be taken to « prevent prices from skyrocketing », he said after a German cabinet meeting.

The The Cabinet discussed what pro-business finance minister Christian Lindner called a « massive package » to relieve pressure on consumers and businesses – Berlin’s third such initiative. Habeck warned that businesses were halting production or closing due to high energy prices.

Despite the market pullback, Gazprom CEO Alexey Miller insisted on Wednesday that gas prices would be even higher this winter « if current market trends persist ».

If Russia pulls the trigger on its gas weapon and ends longer-term deliveries, the success of the winter season will depend on the amount of gas stored, deliveries of liquefied natural gas from suppliers like the United States and demand reduction; Germany has committed to reducing demand by 15% and is on track to do so, although other major markets such as Italy are not close to this level.

« Soaring energy prices appear to have pushed consumers to save gas. Large corporations are making particularly severe cuts, » the International Monetary Fund wrote in a recent assessment of the situation in Germany.

Finally, it will also take some luck to survive the coming months without disaster, as the winter is not much colder than usual.

EU progress in filling reserves « will likely be enough to get through the winter, but it won’t be smooth and prices will remain very high, » said Alexander Gabuev, senior fellow at the Carnegie Endowment for International Peace. .