IEA chief: Russia has substantial scope to boost Europe's gas supplies

European energy prices dipped after soaring 37% a day earlier

Russian President Vladimir Putin said rapidly growing demand amid the global economic recovery from the pandemic had caused Europe’s gas price crisis. Reuters

Russia has substantial scope to boost Europe's gas supplies and alleviate the energy crisis in Europe and the UK, according to Fatih Birol, the head of the International Energy Agency.

Mr Birol said Russia has the capacity to send substantially more gas to Europe, with his intervention strengthening claims the country is withholding crucial supplies.

Mr Birol was referring to President Vladmir Putin’s suggestion on Wednesday that he would boost shipments to the continent.

“If Russia does what it indicated yesterday and increases the volumes to Europe, this would have a calming effect on the market,” Mr Birol told the Financial Times. “I don’t say they will do it but if they wish so, they have the capacity to do it.”

Mr Birol urged Russia to prove it is a “reliable supplier” by delivering on its suggestion, in turn easing a supply crunch that has sent energy prices soaring and threatened the global recovery from the Covid-19 pandemic.

Europe’s soaring gas prices dropped on Thursday following Mr Putin’s suggestion that his country could sell more gas to European spot buyers via its domestic market, in addition to existing long-term contracts.

Rapidly growing demand amid the global economic recovery from the pandemic has driven Europe’s rising gas prices, along with a cold winter and less power generation by alternative sources, Mr Putin said, during a government meeting on energy issues.

However, the Russian leader said the EU’s efforts to switch from long-term supply contracts to spot trading in gas played a key role.

“I would like to underline that the situation in the European energy markets is a bright example of the inadmissibility of hasty and politically-motivated moves in any sphere, particularly in energy issues that determine stability of industries and welfare and life quality of millions of people,” Mr Putin said.

UK wholesale gas prices rose 37 per cent in 24 hours to trade at £4 ($5.4) per therm on Wednesday, up sharply from £0.60 at the start of the year. The high cost of wholesale gas has caused several UK energy firms to collapse and seen production halted across a number of sectors.

“There are increasingly concerns that the UK is being caught in an inflationary spiral, with little end in sight for soaring prices,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“President Putin may have promised to plug some shortfalls in the supply of gas, but the lack of LNG storage facilities amid high demand from Asia, and warnings of a cold winter to come, are likely to see further price spikes.”

The IEA first said last month that Russia could boost its supplies to Europe, without being more specific.

Russian Deputy Prime Minister Alexander Novak said on Wednesday that starting operations on the new Nord Stream 2 pipeline — intended to take Russian gas to Germany — would quickly stabilise European energy markets, a statement considered by some in Europe as an attempt to encourage regulators to certify the new pipeline faster.

The line, which runs through the Baltic Sea, will bypass Ukraine, which has been engaged in a war with Russia since 2014.

On Thursday, the Kremlin said Russia has the potential to boost natural gas supplies to Europe, with spokesman Dmitry Peskov saying existing gas transit routes allow for bolstering supplies before the new Nord Stream 2 pipeline starts operating

“There is a potential,” Mr Peskov said. “It all depends on demand, contractual obligations and commercial agreements.”

Fawad Razaqzada, market analyst at Think Markets, said Russia’s offer to ease Europe’s energy crunch was the biggest talking point in the markets on Thursday, as gas prices fell.

“Russia wants to get the ball rolling on its controversial Nord Stream 2 natural gas pipeline, which according to Deputy Prime Minister Alexander Novak would be one way to solve Europe’s energy crisis. Although it remains uncertain whether Russia will be granted the approval, investors know the pressure is growing on European leaders to do something about surging energy prices — and fast,” Mr Razaqzada said.

However, Mr Birol said Russia was not the only factor in Europe’s energy crisis, with the rapid recovery from pandemic lockdowns, extended maintenance on certain projects and the weather also contributing factors.

He added that governments should do more to protect consumers from rising prices, and the problem could also accelerate the transition away from fossil fuels.

“Very clearly the gas market is not getting good marks from consumers around the world. It has been presented globally as a clean reliable source to complement the energy transition, but it may be casting a shadow on this image,” Mr Birol said.