Natural gas prices in the US have soared this week as Russian President Vladimir Putin leverages a shortage in Europe to secure approval for his controversial Nord Stream 2 pipeline.
The standoff, which sent US natural gas prices to their highest levels in more than a decade, is spurring fears that energy and heating costs could skyrocket in America as the winter season approaches.
US natural gas prices rocketed to $6.31 per million British thermal units on October 6, with the spike blamed on fears of market volatility due to storage issues in Europe, which may trigger soaring demand for American natural gas.
On Wednesday, Putin hinted that he will pump out more gas if Brussels approves the new pipeline bypassing Ukraine and entering the EU through Germany, leading UK officials to accuse Russia of turning energy ‘into a weapon’ and ‘bullying’ Europe.
Kremlin spokesman Dmitry Peskov said existing gas transit routes allow for bolstering supplies before the new Nord Stream 2 pipeline that will carry Russian gas to Germany begins operating.
‘There is a potential,’ Peskov said during a conference call with reporters. ‘It all depends on demand, contractual obligations and commercial agreements.’
On Wednesday, Putin hinted that he will pump out more gas if Brussels approves the new pipeline bypassing Ukraine and entering the EU through Germany
Natural gas (seen in USD/MMBtu) hit a 13-year high this week before easing off Thursday
Map showing points of origin and destination of the Nord Stream pipe (solid line) and Nord Stream 2 pipeline (dotted line) between Russia and Germany. Putin hoped Nord Stream 2 would be finished two years ago, allowing Russia to bypass Ukraine in the south
The Biden administration concluded in May that Nord Stream 2 AG, the company behind the pipeline project, and its chief executive engaged in sanctionable behavior.
But President Joe Biden waived the sanctions to allow time to work out a deal and appease Germany, after relations grew tense during the Trump administration.
Both European and U.S. lawmakers, including both Democrats and Republicans, have opposed the $11 billion pipeline, which could allow Russia to double lucrative gas exports to Germany and other parts of Europe.
But Germany, which carries heavy weight in the EU and would benefit by being the entry point for the new pipeline, has been in favor of the project.
The new route would also bypass and cut off a source of income for Russia’s political foe Ukraine, and potentially allow Russia to wield the threat of cutting off gas flow to Eastern Europe without threatening the supply to the EU.
The 27-country European Union imports about 90 percent of its natural gas needs. Prices are typically lower in the United States, which produces its own gas.
Flexing his muscles, Putin sent the price of natural gas tumbling on Wednesday by saying at a press conference: ‘Let’s think through possibly increasing supply in the market, only we need to do it carefully. Settle with Gazprom and talk it over.’
In May, President Joe Biden waived sanctions against the pipeline to allow time to work out a deal and appease Germany after relations grew tense during the Trump administration
Russia hopes to boost gas exports to western Europe through the Nord Stream 2 pipeline
US Energy Secretary Jennifer Granholm responded by telling FT that the US is watching Russia ‘carefully’, adding: ‘You don’t want to see energy made into a weapon’.
British MP Sir Iain Duncan Smith told MailOnline Russia is ‘bullying’ the EU and the UK should be exploiting its domestic shale gas supplies to get ‘completely clear of any dependency’.
‘Most of our gas is either home produced or from Norway. We are not dependent on Russian gas in the same way as Europe is, especially Germany,’ he said.
‘It should be a reminder that we are sitting on a huge supply of shale gas. It is an absurdity not to want to tap into that,’ he added. ‘Either we make ourselves dependent on countries like Russia, or we actually start looking for more gas supplies.’
Speaking during a Wednesday government meeting on energy issues, Putin said that Russia could sell more gas to European spot buyers via his country´s domestic exchange, noting that sharp price fluctuations are bad for Moscow, too.
But he added that Russia´s state-controlled gas giant Gazprom also needs to fill its own stores to serve domestic needs in anticipation of winter.
Workers pose for a picture after welding the last pipe of the Nord Stream 2 gas subsea pipeline onboard the laybarge Fortuna in German waters in the Baltic Sea, September 6, 2021
Workers are seen at the construction site of the Nord Stream 2 gas pipeline, near the city of Kingisepp, Leningrad region, Russia in 2019
Why is Putin’s $11B Nord Stream 2 pipeline so controversial?
The Nord Stream 2 gas pipeline is set to double Russia’s natural gas shipments to Germany, Europe’s largest consumer of gas, bypassing Ukraine and depriving the EU member state of essential gas transit fees of $1.5 billion per year.
Russia is already the second-largest supplier of gas to the EU behind Norway, and the $11 billion project will increase Europe’s energy dependence on Russia and Moscow’s geopolitical clout.
Donald Trump was opposed to the project and the EU has yet to sign off on it.
But over the summer officials in Washington and Berlin reportedly reached an agreement that would allow the Nord Stream 2 pipeline – which was roughly within 62 miles of completion as of June – to finish construction.
U.S. officials under Presidents Obama and Trump opposed the pipeline, arguing it would strengthen Moscow’s influence across Europe.
Nord Stream already includes one pipeline running from Russia to Germany. Both are owned by a company whose majority shareholder is Russian state gas company Gazprom.
Putin claimed that rapidly growing demand amid the global economic recovery from the pandemic has driven Europe’s rising gas prices. A cold winter and less power generation by alternative sources also were factors, he said.
But the Russian leader also pointed out the European Union’s efforts to switch from long-term supply contracts to spot trading in gas played a key role.
‘I would like to underline that the situation in the European energy markets is a bright example of the inadmissibility of hasty and politically motivated moves in any sphere, particularly in energy issues that determine stability of industries and welfare and life quality of millions of people,’ Putin said.
Russian gas group Gazprom has resisted moving to spot trade in Europe, preferring long-term deals, which sometimes last around 25 years.
Putin, meanwhile, strongly rejected criticism from some European politicians who alleged that Russia’s failure to boost supplies was fueling price increases.
‘Russia has always been a reliable gas supplier to consumers around the world, in Europe and in Asia, and always has fully met all its obligations. I want to emphasize that,’ Putin said.
Putin emphasized that Russian gas supplies to Europe in the first nine months of the year rose 15 percent compared to the same period in 2020, adding that they could set a new record this year.
He said that state-controlled gas giant Gazprom has unfailingly met consumer demands for more gas as envisaged under existing supply contracts.
The Russian leader also rebuffed Ukraine´s claim that Moscow was trying to cut supplies delivered through Ukrainian territory in anticipation of the Nord Stream 2 coming into service. Russia has pumped 8 percent more gas via Ukraine than envisaged by the existing transit contract, Putin said.
Analysts say Gazprom has delivered all the required gas under long-term agreements but has not sold additional gas on the spot market and instead used it for domestic needs.
That has led to criticism from some analysts and some European politicians, who accused Russia of withholding gas to pressure German and European authorities into speeding final regulatory approval for the recently completed Nord Stream 2.
The pipeline is designed to deliver gas directly to Germany, bypassing Poland and Ukraine.