EU Gas Prices Remain Volatile as Nord Stream 2 Awaits Green Flag
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Prices jumped to 30% after falling through the holiday season
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Nord Stream 2 pipeline intends to bring gas into the EU from Russia to Germany
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Gazprom to spend $305 million on Nord Stream 2 in 2022
EU Gas Prices Remain Volatile as Nord Stream 2 Awaits Green Flag
The European gas price benchmark, Dutch Tile Transfer Facility (volume-weighted average price), climbed 30% to €88.74 after a continued slump at the end of the year. Marking a record high on December 21, 2021, the European benchmark remains volatile as cargo of liquefied fuel from the US, headed initially to Asia, arrived at regional terminals with more awaiting instructions at sea.
Gas prices in the EU are about 10 times higher than that last year due to an acute shortage of heating supplies this winter, increasing energy bills for households and industries across the continent, adding to inflationary pressures. Despite market corrections for the past sessions due to incoming supplies, prices are expected to remain high as the market could go up, foreseeing the remaining cold winter in Asia and Europe.
Russian Supplies Make Up Most of EU Gas Imports
Europe gets its majority supply (close to 50%) from Russia through major pipelines - Nord Stream, Yamal-EU via Poland, Ukraine transit, Turk stream, and the rest comes from Algeria and Norway.
Germany is the largest buyer of Russian gas. The country’s gas needs are met through imports and with the help of underground gas storage (UGS) facilities. The LNG relief from western suppliers could be temporary as Russia promises to deliver on its Nord Stream 2 pipeline to Germany.
Nord Stream 2 Ready to be Commissioned
Nord Stream 2 is a new export gas pipeline running from Russia to Europe across the Baltic Sea. The project history dates to April 2017, when Nord Stream 2 AG signed financing agreements with ENGIE, OMV, Royal Dutch Shell, Uniper, and Wintershall. Together, the five energy companies catered to financing 50% of the long-term project costs.
Moscow-based state-owned Gazprom is a sizeable project shareholder committed to providing the remaining 50% of the project’s financing. Gazprom’s natural gas share is the highest in Russian reserves. The company has recently announced that it plans to spend $305 million in 2022.
The total capacity of two strings of Nord Stream 2 is 53 billion cubic meters (bcm) of gas per year, almost equivalent to its precursor, Nord Stream, resulting in an aggregated design capacity of about 110 bcm of gas per year. The new project, which is supposed to cater to the energy needs of European consumers, is now entangled in a political crisis and has yet to obtain full regulatory approval. This comes in the backdrop of military buildup on Ukrainian borders, with leaders looking at the project as a possible instrument for strategic leverages. However, EU leaders are inclined to segregate energy policy and regional conflicts.
Russian authorities alleviated strains around the slow certification process, assuring completion in the first half of 2022. Nord Stream 2 holds a considerable stake in the EU’s geopolitical interests, avoiding over-reliance on Russian gas.
Germany is closing three of its last six nuclear power stations as it shifts to renewables, while France could face power shortages next month when many reactors will be halted for maintenance. Despite the push for renewables, the EU must find alternatives to Russia’s strategic gas pivot, balancing its gas needs in the foreseeable future to avoid such crunches.
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