It’s 20 degrees here in Ottawa . For October, that’s something of a heatwave, and it’s meant to stay this way for a week or so, well into the middle of the month. Beyond that, the weather guys say that we’re in for a generally warm autumn. No need for the winter tires just yet.
Europe, though, is said to be headed for a deep cold spell in the coming months. So good for us, bad for Europe – unless you like winter sports, of course, in which case it’s the other way around. But regardless of what weather you prefer, cold has consequences, one of which is that you have to turn the heating up, for which you need fuel. And in the modern post-coal world, that increasingly means burning natural gas.
Unfortunately, this is a bad time to do so, for the price of natural gas has shot up in recent months, as you can see from the chart below. This is a result of increased demand, reduced output from wind turbines, and a reduction in supplies as Europe’s main suppliers – Norway and Russia – fill up their own stocks before winter. This has apparently ‘all but wiped out stocks’ in the rest of Europe. The markets have responded with a binge of frenzied speculation, shoving natural gas prices up to unnaturally high levels.
Which is obviously Russia’s fault. Because, well … it’s bad, and it’s natural gas, and so Russia must be to blame. After all, we know that all those traders on the futures markets take their orders from the Kremlin.
To give example of the hysterical rhetoric floating around, CNBC ran this headline yesterday: ‘The US was right – Europe has become a “hostage” to Russia over energy, analysts warn.’ The following story then told readers that ‘Europe is now largely at Russia’s mercy when it comes to energy,’ citing analyst Timothy Ash (who regularly pops up on the pages of the Kyiv Post) denouncing Russia’s ‘energy blackmail’ and saying that:
‘Europe has now left itself hostage to Russia over energy supplies … [It’s] crystal clear that Russia has Europe (the EU and U.K.) in an energy headlock, and Europe (and the U.K.) are too weak to call it out and do anything about it … Europe is cowering as it fears [that] as it heads into winter Russia will further turn the screws (of energy pipelines off) and allow it to freeze until it gets its way and NS2 [North Stream 2] is certified.’
If I get this right, the logic is that Russia is deliberately withholding supplies from Europe in order to force Germany to complete the certification of the North Stream 2 pipeline linking Germany and Russia. Unfortunately, Ash fails to provide a shred of evidence for this claim, and it’s not as if the Russians are expressing any sort of concern that the certification may not happen, or that they are specifically targeting Germany.
In fact, there’s no evidence that Russia is blackmailing anybody. Russia’s president Vladimir Putin even sought to calm international markets by telling the Russian gas company Gazprom to keep sending supplies through Ukraine even though it would be cheaper to send them via alternative routes. It’s important to maintain Russia’s reputation as a reliable supplier of energy, he noted, adding that Russia would indeed increase supplies to Europe this year, with exports possibly reaching a record high.
Critics complain that Russia could be pumping more gas to Europe than it currently is. It is apparently true that the volume of deliveries has been down in the past couple of months, as Russia fills up its own stocks before what is expected to be a harsh winter. But, deliveries for 2021 as a whole are on par with last year and Russia is meeting all its contracts. Furthermore, as Ben Aris has pointed out, it’s not that easy for Russia to greatly increase the quantity of gas it supplies Europe via existing pipelines. This is because different gas fields serve different pipelines, with limited connections. The line going via Ukraine comes from fields that are already ‘maxed out’. Additional gas would have to come from the Yamal peninsula – i.e. via North Stream or North Stream 2. With the former already at capacity, that in essence means the latter. In other words, Aris concludes:
‘It is possible for Russia to send more gas west without using NS2 but it’s limited & most expensive option for Gazprom. By far easiest & cheapest option for both Gazprom & EU is to turn NS2 on. This would solve the current gas crisis.’
It seems to me that Russia’s critics need to decide what they want. For years, they’ve been complaining that Europe is buying too much Russian gas. Now, though, they’re complaining that the Russians won’t sell them more! The Russians sell you gas – that’s a sign that they’re out to get you. They won’t sell you gas – proof that they’ve got you!
Frankly, it makes no sense.
Besides which, people don’t sell you stuff unless you ask them to, which in business terms means signing a contract with them. Russia, as previously said, is fulfilling its contracts. What more is it meant to do? As German chancellor Angela Merkel pointed out this week, if European states haven’t signed up to buy Russian gas, they can’t really complain if they don’t get it. She said:
‘To my knowledge, there are no orders where Russia has said we won’t deliver it to you, especially not with regard to the pipeline in Ukraine. Russia can only deliver gas on the basis of contractual obligations, and not just only like that.’
Of course, if Russia was exploiting the rising cost of gas by engaging in price gouging, there might still be some grounds for complaint. But that’s not the case. Russia prefers to lock its customers into long-term contracts. Anybody who had the good sense to sign such a contract with Gazprom a while back when prices were low will now be laughing: their supplies are guaranteed and they’ll be cheap. Germans, Hungarians, Serbs, and the like are probably feeling a bit smug right now. Others who preferred to gamble on the market, or to dump Russia for an alternative supplier such as American LNG will now have to pay the price. But that’s their fault not Russia’s. As Putin pointed out:
‘The practice of our European partners has confirmed it once more that they made mistakes. We talked to the European Commission’s previous lineup, and all its activity was aimed at phasing out of so-called long-term contracts. It was aimed at transition to spot gas trade. And as it turned out, it has become obvious today, that this practice is a mistake.’
None of this, unfortunately, has stopped the flood of stories blaming Russia for Europe’s gas crisis, a crisis that is in large part due to the latter’s own errors. To give a flavour, here’s some of the headlines in the American and British press this past 24 hours:
‘Don’t Fall For Putin or Orban as They Try to Exploit Europe’s Energy Crisis’ – Washington Post
‘As Europe Faces a Cold Winter, Putin Seizes on the Leverage From Russia’s Gas Output’ – The New York Times
‘Russia has the West over a barrel: Fury at “bullying” Putin for offering Europe more natural gas IF his Nord Stream 2 pipeline is approved.’ – Daily Mail
‘Gas price crisis: Is Putin using energy supply as a weapon and what is its new Nord Stream 2 pipeline?’ – Sky News
‘UK dubbed “Putin’s puppet” as “Soviet” Britain’s gas prices plummet after Russian offer’ – Daily Express
‘How “Sleepy Joe” handed Putin the bargaining chip he is using to hold Europe to ransom in gas crisis’ – Daily Mail
Now, I can understand why Western politicians would want to find a scapegoat for their own failings, but why does the press go along with this? Wasn’t there a time when the Fourth Estate prided itself on holding the powers that be at home to account? Apparently no more. Blaming Russia obviously sells more copy. As long as that remains the case, expect the pipelines of BS to keep on flowing profusely!