It seems that Russian natural gas deliveries to Europe are once again on hold. Europe’s energy crunch, which experienced a slight reprieve due to an onslaught of US “Freedom Gas” LNG supplies, is set to recommence as cold weather hits the continent again. At the same time, European consumers and industry are keenly watching the ongoing US-Russia discussions with regard to the Ukraine conflict. War on the European Continent is still a possibility here after the first deliberations between American and Russian diplomats ended on a cold note. American diplomats were clear that there had been no move made by either side, so the threat of conflict on the Ukrainian border is still very real. Russian deputy foreign minister Sergei Ryabkov stated to the press that the West shouldn’t be worried about a possible Russian invasion. He reiterated that Moscow is not going to invade Ukraine. This message does not alter the fact that 100,000 Russian troops are still concentrated at the Ukrainian borders, and that Russian President Vladimir Putin has published two strongly-worded documents indicating that Ukraine is Russian and NATO should retreat from the former Warsaw Pact areas. Washington has made it clear that NATO is not going to abandon the region. At the same time that the U.S. and Russia are talking, Washington and the EU are preparing sanctions in case of a military move by Russia in Ukraine. In response, Moscow has made it clear that sanctions will be countered with moves that will hurt really in Europe. Vladimir Putin clearly understands that playing the U.S. and EU against each other is a smart move, as European leaders are not indifferent to Russian demands and threats. The current and still ongoing European energy crunch was not caused by US political moves but by Putin’s weaponization of commodities. By slowing down or even reversing Russian natural gas supplies to European customers, Putin has increased pressure on European governments. There is a very real possibility of shutdowns in key-economic sectors in Europe due to natural gas shortages if Russia were to turn off the gas.
In a move to increase the pressure further, Russia’s largest gas exporter Gazprom has stated that it will not hold any auctions for Russian gas on its Electronic Sales Platform in the week of Jan. 10-14. On its website, Gazprom indicated that no sales sessions are planned, continuing the recent trend of suspending ESP auctions. Since October 13, 2021, no new sales have been recorded. Most ESP sales, which started in September 2018, sell surplus gas into Europe, mainly outside of long-term contracts. Even during the recent gas price crisis in Europe Gazprom was unwilling (or unable) to sell more gas. Both the Kremlin and Gazprom are aware that by putting pressure on Europe’s natural gas supplies they are putting political pressure on European governments. Increased domestic pressure on European governments will make them less effective when it comes to dealing with any Ukraine conflict. In this regard, Putin’s strategy appears to be working, with European leaders largely silent on the issue at the moment.
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A quick look at other gas Russia gas deals highlights just how Putin is using his commodity weapon in Europe. In stark contrast to its European deals, Gazprom appears more than willing to sign other contracts. Gazprom recently confirmed that it signed a four-year contract with Turkish energy giant BOTA? on December 30, 2021. The deal between Gazprom subsidiary Gazprom Export and Turkish state-owned Botas Petroleum Pipeline Corporation entails the supply of up to 5.75 billion cubic meters (bcm) of Russian gas to BOTA? via the TurkStream pipeline for four years. No price indicators have been given. The deal started on January 1, 2022. The new deal replaces an old 4 bcm agreement with Botas. The total will go via the so-called Turkstream pipeline, which was inaugurated on January 1, 2020. The 930-kilometer (559-mile) gas pipeline from Anapa to Kiyikoy in northwestern Turkey has an estimated throughput capacity of 15.75 billion cubic meters (bcm) per year for each of its two lines, called strings. One of the two strings is supplying gas to southern and southeast Europe. Russia is Turkey’s main natural gas supplier, mainly via Blue Stream (16 bcm) and Turkstream (31.5 bcm). In 2021 Gazprom supplied about 27 bcm of natural gas to Turkey, while in 2020, this figure stood at 15.6 bcm.
Another major deal that was signed recently was between Novatek, another major Russian gas producer, and Chinese energy company ENN. The long-term deal entails the supply of LNG produced from Novatek’s Arctic LNG 2 project. Novatek indicated that the SPA stipulates the supply of approximately 0.6 million tons of LNG per year from the Arctic LNG 2 project. The term is for 11 years. The volumes will be delivered on a DES basis to ENN’s Zhoushan LNG Receiving Terminal in China. Novatek is planning to expand its LNG volumes to the Asia Pacific substantially.
By signing new supply deals or revamping long-term contracts outside of Europe, Russia is clearly sending a message to EU member states that natural gas markets are booming and Moscow has plenty of options. The subtext regarding how the EU deals with any Ukrainian confrontation is clear. Moscow is no longer fully dependent on Europe for its commodity revenues. The pressure is on for Brussels, and if the EU does overstep here it could face plenty more energy crises in the future.
By Cyril Widdershoven for Oilprice.com
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The crisis on the energy front was caused by the hapless EU politicizing energy and deliberately delaying the certification of Nord Stream 2 gas pipeline under intense pressure from the United States as well as misreading the global gas market and mismanaging their own gas supplies for the winter.
On the geopolitical side, President Putin made it clear to the United States, the EU and NATO that accepting membership of Ukraine in NATO is a red line and that there will be serious consequences if it is crossed. After all, the Cuban nuclear crisis of 12 October 1962 which almost brought the world to the brink of a nuclear war between the United States and the former Soviet Union originated from US threats to Cuba, an ally of the USSR and the Soviets stationing nuclear missiles on the Island less than 90 miles from the United States. Therefore, how would the United States and NATO expect Russia to react if troops and nuclear missiles were stationed in Ukraine and other Baltic States less than 3-4 minutes alert time for the Russian defences?
Neither American or Qatari or Australian LNG nor Norway’s and Netherlands’ gas supplies to the EU are sufficient to quench the thirst of the EU for natural gas. Only Russian reliable and plentiful gas supplies can. However, Russia isn’t inclined to ship any meaningful supplies to the EU without the certification of Nord Stream 2 and therein lies the problem for Europe this winter. Moreover, Russia has a choice. Putin has other markets for his gas and therefore he isn’t dependent on the gas export revenue from the EU.
The presence of reported 100,000 Russian troops on the border of Ukraine will provide President Putin with a powerful leverage to achieve his goal knowing full well that the Americans and the Europeans don’t have the stomach for war over Ukraine and if a war does happen and threaten to escalate into a nuclear one, he has the world’s largest arsenal of nuclear weapons.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Meanwhile I note that you published the Professor's comment, containing this statement:
"The presence of reported 100,000 Russian troops on the border of Ukraine will provide President Putin with a powerful leverage to achieve his goal knowing full well that the Americans and the Europeans don’t have the stomach for war over Ukraine and if a war does happen and threaten to escalate into a nuclear one, he has the world’s largest arsenal of nuclear weapons."
Seems that Russia can do no wrong.