European natural gas futures prices rose nearly 18 percent on Tuesday and rebounded on Wednesday. UK wholesale price also increased dramatically. They are now returning to the record levels seen in early October, when a number of factories in Europe and the UK had to close as their operations became unprofitable.
“The market is extremely mixed,” said Nikos Tsafos, an energy and geopolitics expert at the Center for Strategic and International Studies in Washington DC.
For now, Germany’s decision not to approve Nord Stream 2 as the Swiss-based pipeline operator appears to be based on legal technicality. But the move will delay the date the gas is expected to start flowing – a turning point that analysts say could ease Europe’s energy shortfall.
“The pipeline start time now appears to be longer than we initially expected,” strategists at Goldman Sachs wrote in a research note.
They now predict gas will start flowing along the pipeline in February 2022, although some analysts expect it to be even later. That means a supply boost cannot be expected in the coming months, an already challenging period.
“Nord Stream 2 is the pipeline that could change the supply game in Europe and scale up,” said Carlos Torres Diaz, head of gas and electricity markets. at Rystad Energy.
The importance of Nord Stream 2
The European Union imports about 40% natural gas from Russia, and even as the country transitions to cleaner energy sources, that dependence is expected to remain intact.
Construction of Nord Stream 2 by Gazprom, which is controlled by the Russian state, began in 2018 and was completed in September. It is set to deliver 55 billion cubic meters of gas per year directly from Russia to Europe. .
The pipeline has always been controversial because it passes through Ukraine, prompting countries like the US to warn it will strengthen Moscow’s influence in the region. But there has been speculation that the approval process to start operations could be sped up as natural gas prices in Europe move higher due to weather conditions and demand spikes as shutdown orders are announced. remove.
“We don’t have enough gas at the moment,” said Jeremy Weir, CEO of energy trading firm Trafigura, at a meeting hosted by the Financial Times this week. It’s a real concern that … if we have a cold winter, we could lose power continuously in Europe.”
There has never been much clarity about whether gas from Nord Stream 2 can actually de-escalate the situation in the coming months, said CSIS’s Tsafos. However, the delay in certification adds to concerns that Russia will not exceed its contractual obligations to supply gas to Europe at a difficult time, as some had hoped.
“We are in a slightly more believable environment with what is about to happen in Russia this winter,” said Tsafos.
Eurasia Group’s Henning Gloystein thinks gas coming to Europe from Russia this winter will not be affected, but admits that the situation remains politically tense.
“By suspending the Nord Stream 2 approval process, German regulators and most likely their new government have signaled that they are not prepared to bow to Russian pressure in the near future,” he said. fast approval for the pipeline”. “It also signals [to] its allies in Poland, Brussels and in Washington that Berlin is not deaf to their criticism of the pipeline. “
This development affects Europe’s prospects in the near future.
Recent research led by Stefan Bouzarovski, a professor at the University of Manchester and chair of the Engager energy poverty research network, shows that as many as 80 million households across Europe are struggling to keep up keep their homes warm enough before the pandemic.
The current spike in prices could make matters worse, although governments have taken steps to offset higher costs or put limits on bill increases.
Rystad Energy predicts that Nord Stream 2 delays could even affect the energy market after this winter, predicting that the certification will now be completed around April at the earliest. Eurasia Group also suggested that Operations probably won’t begin until Q2 2022.
That would prolong the scramble for liquefied natural gas, which is currently in extremely high demand.
“Europe may be forced to continue to rely on the already tight liquefied natural gas market, which suggests that a high price environment is likely to remain throughout the first half of the year,” Rystad Energy said. to increase if Europe shows up with severely depleted reserves.”