How Putin is Pushing the Energy Transition

January 17, 2022

Perhaps inadvertently, but in reality.


Europe subcontracted its energy security to President Vladimir Putin — now it’s paying the price.

If European energy regulators learn any lesson from this winter’s soaring gas and electricity prices, it ought to be that they need a new set of rules governing gas storage ahead of the cold winter months.

It seemed like such a good idea allowing Gazprom PJSC — Europe’s major gas supplier — to buy up storage facilities close to its customers. After all, Russia has been a reliable supplier of gas to Europe since the 1960s, with flows of the vital winter heating and power generation fuel largely untroubled by the Cold War, the breakup of the Soviet Union and the subsequent reassertion by Russia of its superpower status.

Russian gas flows to Europe haven’t been curtailed by the northern migration of its gas production heartland to the Yamal Peninsula, the emergence of China as a major new destination for export pipelines, nor the Kremlin’s 30-year policy of cutting transit countries — like Belarus, Poland, Ukraine, and the Baltic states — out of its oil and gas export routes.

By selling gas storage sites to Gazprom, European consumers retained the comfort of a large store of readily available fuel on their doorstep without distribution companies and utilities having to actually buy the gas until they needed it.

The European utilities were very happy to let Gazprom incur the financial cost of buying the gas and storing it, often in what are called backwardated markets — where future prices are lower than current ones — when there wasn’t any money to be made in storage. But the very same utilities are crying today about the lack of gas.

The system works just fine, as long as the storage facilities are filled before the cold weather comes. This winter, they weren’t. And the reason is clear: Gazprom, which controls nearly one-quarter of Germany’s gas storage capacity through astora GmbH, failed to fill its storage caverns.

For consumers, the fact that storage caverns were left unfilled is more important than the reason behind it. European utilities weren’t in any rush to lease storage space and Gazprom either couldn’t, or wouldn’t, fill the storage it owns. Whatever the cause, the result for consumers is the same: fears of shortages and skyrocketing prices.

Russia has suddenly become an unreliable supplier. But the fact that Europe never insisted on minimum inventory levels for foreign entities — or domestic ones — owning storage facilities is perplexing.

Financial Times (paywall):

The head of the International Energy Agency has accused Russia of throttling gas supplies to Europe at a time of “heightened geopolitical tensions”, implying that Moscow has manufactured an energy crisis for political ends.

Fatih Birol said on Wednesday that the IEA believed Russia was holding back at least one-third of the gas it could send to Europe, while depleting Russian-controlled storage facilities on the continent to bolster the impression of tight supplies.

“We believe there are strong elements of tightness in the European gas market due to Russia’s behaviour,” Birol said. “I would note that today’s low Russian gas flows to Europe coincide with heightened geopolitical tensions over Ukraine.”

Birol added: “Russia could increase deliveries to Europe by at least one-third — this is the key message.”

The comments from Birol are his most pointed yet on Russia’s role in the energy crisis. They come as households in Europe expect steep increases in energy bills after wholesale gas and electricity prices hit record levels.

Russia has stationed about 100,000 troops close to the Ukrainian border, leading the US and its allies to warn of tough sanctions on Moscow if President Vladimir Putin invades Ukraine. Moscow is holding talks with Nato and the US this week over European security.

Russia has insisted that it has fulfilled its long-term gas supply contracts to Europe, but has been accused by policymakers and analysts of holding back supplies by restricting spot sales. Birol said Russian gas exports to Europe were down by 25 per cent year on year in the last three months of 2021.

Gazprom, Russia’s state-backed gas company, wants to win approval for the start up of the Nord Stream 2 pipeline to Germany, which has been built as an alternative to transit routes through Ukraine.

The US has long been concerned that Russia will use the pipeline as a way to put pressure on Kyiv. US officials warned Moscow that it would pay a heavy cost economically, including on energy, if it invaded Ukraine.

“While Europe does need Russian natural gas, Russia also depends on European consumers,” a senior Biden administration official told reporters on Wednesday.

“If Putin weaponises energy supply, he’s very likely to stiffen the resolve of Europe to find more reliable supplies from elsewhere. And that would further degrade Russia’s growth potential and its ability to exert influence.”

AS always, if you’ve been watching my Yale Climate Connection videos, you’d be well briefed on what’s going on right now.

7 Responses to “How Putin is Pushing the Energy Transition”

  1. John Kane Says:

    As you say Gazprom is fulfilling its contracts. Much of Europe dropped out of long-term contracts and has been buying on the spot market. Apparently Gazprom has not been willing to ship gas on speculation. Probably a business decision as much as anything? Gazprom may well think it can make a better return selling elsewhere.

    I don’t remember any business principle that says a seller must sell just because the buyer screwed up. If I forget to make a reservation at a restaurant I don’t expect the Maître D to pull a table out of storage and set it up for me.

    Of course, it may be just a bit annoyed that it and its European partners have invested a few billion euros in Nord Stream 2 only be kicked in the teeth by the USA and the EU.

    A subsidiary question is how long will the Ukrainian pipelines remain operational?

    Due to their age, obsolete design and underspending on maintenance, the Ukrainian pipelines are in a poor state of repair and becoming increasingly unreliable. Estimates of how much refurbishment would cost vary from US$2.5 billion to US$12 billion, while the bill for total replacement, according to a 2017 KPMG study, could be as high as US$17.8 billion.
    The Nord Stream 2 Pipeline.

    • Keith McClary Says:

      When demand and prices tanked, US producers stopped drilling so production declined due to the natural depletion of wells. Now they are enjoying high prices and in no hurry to drill until they think the high prices are to stay. Russia is in the same situation.

      I don’t think the US will be a more reliable supplier for Europe, it has a record of restricting exports to appease American drivers.

      • John Kane Says:

        Given the USA’s recent history of “international diplomacy by sanction” it would likely be much less reliable.

  2. redskylite Says:

    “This could also help to avoid future spikes in gas prices the likes of which have caused a multitude of energy firms to collapse over the last few months.”

    • rhymeswithgoalie Says:

      Their H2 blend will supposedly include green hydrogen (from electrolysis) and blue hydrogen (derived from natgas). “Green” hydrogen can become green over time as the electrolysis source power shifts to more renewables. Blue hydrogen is just a way to palliate the natgas producers without really addressing climate change.

      • redskylite Says:

        Canada also going ahead with the mix of gases – using clean source of hydrogen, seems pointless to use fossil fuel created hydrogen. At 74 years old I begin to wish I could fast forward time to mid century or further on, just to see how much progress we make against climate change, seems a bit like watching paint dry at the moment. Or am I just an impatient old man. ?


        “Clean hydrogen from Enbridge Gas’ power-to-gas facility is now also being injected into a portion of its existing natural gas system, serving around 3,600 customers in Markham

        • rhymeswithgoalie Says:

          Damn, you’re old! I’m in my sparkling youth here at 61.

          I’ve changed my progress-watching to grid improvements and EV uptake, because I consider “progress against climate change” both too mushy and depressing.

          I see a lot of non-GHG value to killing off the fossil fuel sector on its own, reducing wars and Deepwater Horizons and the lung-trashing air pollution in cities.

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