Europe’s Winter Gas Crisis Just Got Worse
3 Min Read
As Germany announced suspending the certification process of the new Russian gas pipeline Nord Stream 2, the rippling effect still hits energy markets hard.
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Nord Stream 2 logo on a pipe in Chelyabinsk, Russia, February 26, 2020 (Reuters)
European natural gas futures finished almost 18% higher on Tuesday and rose again on Wednesday. UK wholesale prices also surged. They're now heading back towards record levels seen in early October.
As winter sets in, how will buildings, businesses, and households be able to secure energy sources amid the aggravating gas crisis?
"Markets are incredibly jittery," said Nikos Tsafos, an expert in energy and geopolitics at the Center for Strategic and International Studies in Washington D.C. "The lack of certification adds to that anxiety."
Germany's decision to delay approving Nord Stream 2 because the pipeline operator is based in Switzerland appears to be based on a legal technicality. But the move will delay the date when gas is expected to start flowing.
This delay has caused the price of natural gas futures in the Netherlands, Europe's benchmark for natural gas prices, to soar up to €95.16 per megawatt-hour (MWh).
As for when the flowing will start, strategists at Goldman Sachs said, “The timeline for the start of the pipe now appears longer than what we initially expected."
They now predict gas will be delivered through the pipeline in February of 2022, with others thinking it will be even later.
"Nord Stream 2 is the pipeline that can change the supply game in Europe and tip the scale, so delays in its utilization mean the current tight gas market conditions will persist through the winter," said Carlos Torres Diaz, head of gas and power markets at Rystad Energy.
Why is Nord Stream 2 so important?
The European Union gets about 40% of its imported natural gas from Russia, and even as it transitions to cleaner sources of energy, 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's set to deliver 55 billion cubic meters of gas per year directly from Russia to Europe.
Earlier, Russia had said more gas would flow into Europe if Moscow obtained the green light to operate Nord Stream 2, whose construction it had lately fully completed.
Foreign Minister Sergey Lavrov had previously informed Europe that Russia was ready to help the EU overcome its energy crisis while stressing that the European Union must take steps in this regard.
Russian President Vladimir Putin had said beforehand Europe was to blame for the current energy crisis after soaring gas prices spurred accusations that Moscow is withholding supplies to pressure the West.
