Russia’s Gazprom Manipulating Prices to Punish Europe for Sanctions & Nord Stream II Delays

 Russia’s Gazprom Manipulating Prices to Punish Europe for Sanctions & Nord Stream II Delays

by Miceál O’Hurley
Diplomatic Editor

MOSCOW Gazprom, Russia’s giant gas industry company, stands accused of manipulating European gas prices as unusually hot summer weather is causing peak demand across the continent.  Russia’s latest price is having a deleterious impact on European economies, hurting the poor and vulnerable most.

According to statements from investment bank Renaissance Capital after their meeting with Gazprom two weeks ago, Gazprom was determined to raise the  average natural gas export price for non-CIS countries to a critically high $240 USD per 1,000 cubic metres – a 68% increase over 2020 prices.  In 2020, Gazprom exported natural gas to non-CIS countries for an average price of only $143 USD per 1,000 cubic meters.  The mean gas export price decreased by approximately 32% compared to 2018.  Gazprom had previously projected gas prices for the EU market to top at between $200-$206 USD per 1,000 cubic metres.

Worrying most analysts is Gazprom’s repeated refusal to comment to multiple news and industry publications as to any legitimate reasoning behind its extraordinary price hikes.

Experts Deem Russian Price Gouging ‘Exploitative’ and ‘Coercive’
Beyond the extraordinary price increase so far above projections, and without giving any reasoning for the price hikes to Europe, Gazprom announced it would be shutting its two largest Russian gas export pipelines to Europe in mid-July when demand is annually and foreseeably high.  Gazprom, a State-controlled monopoly, plans to halt all pumping of gas to Europe via the Yamal-Europe pipeline across Belarus and Poland with a terminus in Germany as well as the Nord Stream I offshore pipeline which also serves Germany.   Gazprom has scheduled the Yamal-Europe facility to be closed for from 6-10 July with Nord Stream then shutting down from 13-23 July.

ICIS TTF Front Month Prices – Gazprom 2021 (Graphic Courtesy ICIS)

The unusual timing of key pipeline shut-downs during peak demand across Europe has certainly raised eyebrows across the energy sector.  Industry experts have opined that Gazprom is engaged in what may be the beginning of an exploitative and coercive plan to choke-off Europe’s supply of gas during high demand and reap extraordinary profits while doing so.

As a State controlled monopoly, Gazprom has long been wielded as a political tool when it suits Putin.  Smarting from continued sanctions for its illegal invasion and occupation of Eastern Ukraine, and its equally illegal attempt to annex Crimea and eager to harm Ukraine financially by ceasing to use its oil pipeline network thus depriving it of revenue, Gazprom’s actions seem focused on politics more than energy policy, production capacity or maintenance demands.  Putin appears to being using Gazprom as a tool to force Europe to forge ahead with the Nord Stream II project.  The project, which will significantly increase Russian capacity to provide gas to Germany and thereby Europe, serve’s Russia’s dual goal of making Europe predominantly reliant on Gazprom while depriving Ukraine of revenues from gas transit.

Russia Refuses Production Increase Without Nord Stream II Approval
According to Nick Campbell, a Director at the industry consultancy firm Inspired Energy, “So far this summer Gazprom has yet to purchase any capacity in the (Ukraine’s) monthly auctions therefore one could see this as a strategy to push Nord Stream II to completion.”  In addition to creating an artificial supply deficit, Russia has already indicated it is explicitly linking higher production quotas to the opening of Nord Stream II.  Elena Burmistrova, the head of Gazprom’s exporting division, said in May, “… [Gazprom] would be able to cover additional demand with the commissioning of Nord Stream II.”

Nord Stream II will give Russia the ability to essentially place Europe’s gas energy security under its historically coercive control.  This demonstration of market manipulation and supply strangulation by Gazprom is an example of the danger to Europe’s energy security by opening Nord Stream II.  Europe, however, led by Germany, seems to be committing itself to over-reliance on Russian gas and as Putin is demonstrating, Gazprom is showing itself quite willing to manipulate the European energy market for more than profitability – it is virtually holding a gun to Europe’s head to force the opening of Nord Stream II.  Once commissioned, Nord Stream II will make the continent infinitely more reliant on Russia while dealing a financial blow to a Ukraine already damaged by Russia’s invasion and occupation.

White Paper Published by Urgewald (Click Image to View Report)

With Nord Stream II – Europe Mutes the Impact of Its Sanctions on Russia
Europe has been impressively vocal about Russia’s illegal conduct in invading and occupying parts of Eastern Ukraine and attempting to annex Crimea.  Equally strong condemnation has be shown when Russia engages in a never-ending series of extrajudicial killings of its enemies on European soil through polonium, Novichok, shootings or strangulations or even assisting in forcing-down an Irish civilian passenger jet in order to arrest a dissident journalist.  Europe has even voiced its disdain for Russia’s persecution of members of the LGBTQ community or political opponents like Alexei Navalny, whom Putin tried to have poisoned on several occasions only to jail him over trumped-up charges.  Europe has employed sanctions regimes to bring pressure to bear on Putin and his Russia, however, 7-years after it invaded Ukraine, Russia remains.  It is necessary for Europe to ensure its actions don’t undermine its rhetoric.

Still, signs that Europe’s sanctions are working are emerging.  Sanctions are starting to have a significant impact on Russia.  Russia’s economy has only grown by an average of 0.3%, per year, while the global average was 2.3%, per year. Putin has been forced to slash foreign credits and foreign direct investment.  Such consequences have arguably reduced Russia’s economic growth by 2.5% – 3% a year since 2014.  In real terms, this means that Putin’s attempt to re-assemble the Soviet Empire (a long stated goal of his) beginning with Ukraine (ask any Baltic State – it does not end with Ukraine) has cost Russia approximately $50bn  a year – a devastating loss of some $350,000,000,000 all because of sanctions since 2014.  Economists do not expect the Russian economy to grow beyond its anemic rate until sanctions are ended.  That is, unless Nord Stream II is opened and provides Putin with the cash infusion Russia so badly needs.

Doing Business with Russia – Counterintuitive and Dangerous
The counterintuitive move to place Europe’s energy security in the hands of a nation and its master that have shown utter contempt for Europe and a preternatural disposition to use threats and the force of arms to invade its European neighbours seems like madness.  If Russia is willing to weaponise the gas market to coercively obtain its political goals of skirting sanctions, all while manipulating it to make record profits, the wisdom of opening Nord Stream II until such time as Russia comes into compliance with international law seems reckless and dangerous.

Political analysts are voicing concern about the domestic impact of unwieldy gas price hikes and shortages engineered by Russia.  With growing immediate demand, and with an eye to winter needs, domestic dissatisfaction with governments across Europe is growing.  Moreover, higher energy prices are likely to restrain growth and pose the danger of edging-up inflation – further causing headaches in domestic political circles.  “This is a classic Russian tactic”, said one political advisor in Brussels who declined to be named as they were not authorized to speak on the topic at this time.  “By creating an artificial international dispute that directly fuels domestic dissatisfaction, Russia plies pressure on EU policy makers and finance ministers to capitulate to their demands.  Destabilising the opposition is right out of their playbook”.

Europe seems to be suffering from amnesia.  In 1950, those who had suffered through what history records as the most horrible of wars in human annals came together to form the European Coal and Steel Community with the distinct purpose of ensuring that no one nation had the economic and/or resource superiority to go to war against its neighbours.  For almost 75 years, with the exception of Russia’s invasion and occupation of Georgia and Ukraine, the policy of ensuring natural resources are not imbalanced in the hands of ambitious nations with records of military misadventure, has kept the peace in Europe.

Russia’s Gazprom Unreliable Partner
One of the most persuasive reasonings behind Nord Stream II was to increase energy security to Europe.  Russia’s manipulation of the gas supply at present lays bear the absurdity of that goal ever being achieved with Gazprom as a partner.  As long as Europe’s energy partner is the State-controlled tool of a demonstrably aggressive regime the scant notion that energy security can be achieved with such a partnership is sheer fantasy.  Equally unreasonable is the idea that Nord Stream II will lead to achieving climate change goals.  Gazprom’s environmental record is deplorable and Russia’s commitment to climate change is transient at best.

Bloomberg Reporting on Gazprom Leak Spotted by Satellite (Screenshot – Bloomberg Business News, 2021)

Gazprom knowingly sought to obscure an incredibly large methane gas leak for weeks which occurred last month.  It took international pressure for Gazprom to address the problem and it only began to do so once the leak became so inordinate that it was detected by satellite data by French geoanalytics firm Kayrros SAS.  Gazprom finally admitted on 4 June 2021 that it had released at least 2.7 million cubic metres (1,830 metric tons) of methane into the atmosphere before Kayrros SAS alerted officials that the massive leak was detected by satellite from France.  Experts assert the leak was far bigger and lasted far longer than Russia’s Gazprom admitted.  According to the Environmental Defense Fund, even the leak admitted to by Gazprom was equal to at least a staggering 40,000 automobiles in the United States driving for a year.  The greenhouse gas methane has devastating 80-times the impact of carbon dioxide in the short-term.  This is only the most recent environmental problem from Gazprom which has been exposed.

Gazprom – An Agent of Environmental Disaster
Consider the Yamal Peninsula gas fields operated by Gazprom.  The once fertile land inhabited by indigenous peoples and abundant fauna and flora is now a decrepit wasteland.  The indigenous Nenet people have virtually disappeared, having been forcibly re-located so their lands could be exploited for State gain.   Just one of the environmental disasters in Yamal is ‘gas flaring’.  A deadly biproduct of poor gas drilling and pumping practices, there are reportedly an excess of 1,500 gas flares on the Yamal Peninsula at any given time.  According to the World Ban, Russia outpaces every other nation on Earth in gas flaring with Gazprom’s share being a stupefying 21.3% of the global total.  Russia, however, only pays lip-service to the problem.  In 2015, despite the Yamal prosecutor’s office recording an excess of methane emissions by a factor of 6 and black carbon by a factor of 37, the total again grew in 2016, 2017 and 2018 (the last period for which reports are available).

Perpetually Burning Gas Flare at Gazprom Site (Photo Courtesy – Asia Times)

Europe cannot credibly claim that Nord Stream II is essential to fight global warming and meet climate change goals when the pollution begins at the source, is unchecked and wildly out-of-control.  Importing Russian Gazprom gas makes Europe complicit in the crimes against the indigenous Nenet people and the long-term devastation of its environment which today’s technology cannot begin to remediate.  Europe, and Germany in particular owing to its continued promotion of the Nord Stream II project, needs to be transparent and intellectually honest in its dealings with Russia and Gazprom.

Despite being touted as a tool to gain climate change compliance, a White Paper published by Urgewald concludes that Nord Stream II is a Climate Disaster:

“Nord Stream 2 is disastrous for the climate and not compatible with the Paris Agreement’s goal of limiting global warming to 1.5°C as agreed upon in the Paris climate accord. The pipeline would cause CO2 emissions of 100 million tons per year, and this figure does not take the additional methane leakages in the project’s supply chain into account. As gas demand is decreasing across Europe, Nord Stream 2 will likely become yet another stranded fossil fuel asset. The project is primarily being pushed forward for geopolitical reasons and despite US sanctions”.

EU’s Relationship with Corruption by Putin and Gazprom Well Documented
In what The Telegraph reported in 2018 was “The longest investigation in EU history found that the Kremlin-controlled energy giant Gazprom has used its enormous power to pressure vulnerable states in Eastern Europe, and to fragment the EU’s unified energy market with coercive pricing policies.

2018 Screenshot of The Telegraph Reporting on EU Files Showing Cover-Up on Collusion with Putin’s Gazprom Abuses (Screenshot – The Times)

The report suggests that Germany has been enjoying a sweetheart deal with Gazprom, gaining a competitive advantage in gas costs at the expense of fellow EU economies and leaving front line states at the mercy of Moscow’s strong-arm tactics.

Hundreds of pages leaked  from the European Commission paint an extraordinary picture of predatory behaviour, with Gazprom acting as an enforcement arm of Russian foreign policy. Bulgaria was treated almost like a colony, while Poland was forced to pay exorbitant prices for imported flows of pipeline gas from Siberia.

The stash of files slipped to Euro-MPs – in a very rare breach of secrecy rules – amounts a political bombshell. It is highly embarrassing for the EU’s exalted competition directorate. The papers imply that Brussels learned the full truth long ago, yet there are signs that officials may nevertheless be turning a blind eye as they prepare to reach a cosy understanding with Moscow, disregarding fundamental principles of EU law.”

Given the long-term and well documented knowledge of Putin using Gazprom to achieve its political goals, Europe’s throw-of-the-dice in doing business with Gazprom, Russia and Putin demonstrates reckless abandon.

Today’s Energy Security Gamble Risk Creates Enduring Vulnerability
Rewarding Russia with cash that will flow directly from Gazprom to the Kremlin will not only eviscerate the impact of sanctions that are beginning to work, but will embolden Putin to continue with his plans to dominate former Soviet States as he has made no secret of doing.  By placing so much of the continent’s energy security in the hands of a self-declared opponent of Europe and democracy Europe is creating an inherent vulnerability which it will soon regret.

 

 

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