Gazprom has announced that Russian gas exports to Europe – which were reduced during an exceptionally cold snap this month – have been restored to normal levels. But instead of apologizing for the inconvenience, the Russian gas monopoly has gone on the offensive, telling the EU it only has itself to blame for Gazprom’s supply problems.
Abnormally cold weather forced Gazprom in early February to divert some gas away from European markets to cover a surge in Russian energy demand. Although dependent on Russia for one quarter of its gas imports, the EU saw no need for panic. Unusually large European stocks of gas prevented an energy crisis even as temperatures dropped below minus 30 degrees Celsius across much of the continent .
Alexander Medvedev, the outspoken head of Gazprom’s export division (and no relation to Dmitry Medvedev, Russia’s president), lashed out at the EU saying “politically motivated” policies to liberalize gas markets had set the stage for the supply disruptions.
“The February cold snap highlighted the gradual build-up of a systemic problem in the current gas industry. This is exactly what we have continuously warned of,” he said.
Gazprom was not the only company to reduce gas deliveries to Europe during the cold snap, said Medvedev , emphasizing that spot markets, for all their supposed flexibility, had been unable to close the gap in supplies. Surging spot prices raised concern that the stability of supplies could become “hostage to market speculation.”
The cold snap, coming at the end of an unusually warm winter, was good for Gazprom, creating extra demand for gas in recession-hit European energy markets. The EU will almost certainly turn to Gazprom to help rebuild its depleted gas stocks before another winter sets in.
So it sounds as if Medvedev is exploiting Gazprom’s supply problems to discredit increasingly influential European spot markets that are undermining the way Gazprom traditionally trades gas.
Gazprom wants to continue trading under confidential long-term contracts that link Russian gas export prices to world oil prices. But the company is under intense pressure from European utilities to modify trading terms to reflect conditions on spot markets where gas prices are not linked to oil but gas. On Tuesday PGNiG, the Polish gas firm, said it had filed suit against Gazprom at an international tribunal in Stockholm over the price of gas in its long-term Russian supply contract.
Medvedev says stable, long-term contracts are essential if Gazprom is to embark on high cost new gas field developments that will guarantee Europe’s long-term energy security.
The EU in its usual way has not responded publicly to Medvedev’s tirade . If energy planners in Brussels were more outspoken they might advise Gazprom to follow their lead and encourage the liberalization of the Russian gas industry.
For a start Russia could allow domestic gas prices to rise rapidly to reach parity with European levels and open the market to more competition. Higher gas prices would encourage energy conservation and free up more gas for export or manufacture of high value products like petrochemicals. A move by Gazprom to surrender its gas export monopoly and share access to lucrative European markets with other producers would stimulate investment and encourage transparency.
It’s hard to image Medvedev agreeing to that.