Russia’s Gazprom has damped hopes for additional gas exports to Europe next month as the continent struggles with record prices, despite recent hints from President Vladimir Putin that more could be forthcoming.
The UK and European gas prices surged as much as 18 percent on Monday after a keenly awaited pipeline capacity auction showed no increase from Russia either through the Ukrainian pipeline system or lines passing via Poland to north-west Europe.
Traders and analysts say the auction’s result is the latest indication that Russia is in little rush to send additional gas to Europe, leaving supplies tight as winter begins and raising the prospect of shortages if the weather is marginally colder than normal.
While Putin and Kremlin officials have hinted at sending more gas, they have also alluded to Germany’s approval of the start-up of the controversial Nord Stream 2 pipeline — which bypasses Ukraine — as being key to boosting supplies, alongside companies being willing to sign more long-term contracts.
“Gazprom is undoubtedly assuming that Nord Stream 2 will be approved in the relatively near future, and positioning itself accordingly,” said Ron Smith, executive director at BCS Global Markets in Moscow.
The level of concern oversupplies in Europe sent the benchmark gas contract for November delivery up after the auction results, rising 18 percent to €104 per megawatt-hour, while the equivalent UK contract jumped more than 15 percent to 22.71 per therm.
Prices are more than five times higher than a year ago, posing a threat to the economic recovery from the pandemic, with energy-intensive businesses warning they may need to curtail production.
While gas supplies have tightened globally as demand rebounds from the pandemic, with Asian consumption soaring, the International Energy Agency said this month it believed Russia had the capacity to boost exports by about 15 percent to Europe.
Putin last week denied playing politics with gas supplies but indicated additional sales would need to be on Russia’s terms. Gas industry executives and analysts have said that, while Moscow has fulfilled its long-term contracts, additional top-up sales have not been made available as they were in previous years.