The cold snap that has frozen most of Europe solid has created some tensions over Russia’s role as supplier of natural gas to its neighbors. On Friday, a Gazprom official claimed that Ukraine was taking more than its share from the pipeline that runs through its territory. For those who remember the unpleasantness between Moscow and Kiev in 2006 and 2009 over natgas prices, this came as an awkward reminder that when demand soars, it’s still every nation for itself.
CFO of Gazprom, Andrei Kruglov, admitted yesterday that the fault lay not with Ukraine but rather with his company’s export capacity. “Gazprom at the moment cannot supply the extra volumes our West European partners are asking for,” he told President Putin according to Reuters. Moreover, the cold in Russia has increased demand there. So, for a few days, Russia reduced the amount of gas it was putting into the pipeline in the first place.
The good news here is that many of Gazprom’s customers have increased with stockpiles, and so the 10% decrease many experienced did not cause any enduring hardship. With gas from the pipeline selling at record prices (more than US$400 per 1,000 cubic meters), alternatives are coming on line, which will help diversify supply, including liquefied natural gas. And Russia is not the only source of natgas. For example, Norway is maintaining its reputation as a reliable supplier to the UK. Because of the cold, UK demand was just shy of 378 million cubic metres (mcm) on Saturday, about 63.5 mcm higher that usual. Still, flows from Norway continued at 380 mcm.
Russia sees that it must improve its ability to service customers, Reuters has reported, “Gazprom increased its gas supplies to Europe to 150 billion cubic metres (bcm) from around 138.6 bcm in 2010. It is aiming to ramp up those volumes to around 164 bcm this year thanks partly to the underwater Nord Stream pipeline commissioned last November. Nord Stream’s initial capacity stands at 27.5 billion cubic metres a year, which may be doubled by the fourth quarter. Russia is also pushing for a South Stream pipeline to rival the EU-backed Nabucco and other supply lines. Moscow plans to ship over 60 bcm of gas to Europe via South Stream starting from 2015.”
However, you have to wonder if this is going to be sufficient given that some countries in Western Europe (e.g., Germany) have decided to end their nuclear power generation. While the ideal replacements are renewables, it’s so very easy to buy gas from Russia and elsewhere that the additional capacity envisioned may not be good enough.
