Russian official Alexander Novak hinted on Oct. 6 that Russia could export gas to Europe to stabilize spiraling gas prices, but that Germany needed to certify Nord Stream 2 first.
The Nord Stream 2 pipeline will allow Russia to send gas to Europe through the Baltic Sea and Germany instead of Ukraine. This will cause Ukraine to lose at least $1.5 billion in transit fees per year.
The pipeline is awaiting technical certification and insurance from a German gas regulator, which is still considering Nord Stream 2’s application as an independent transmission system operator.
A German court recently ruled that Nord Stream 2 must auction half its capacity to third parties, per EU regulations. There are no third-party gas exporters in Russia, where Gazprom is a monopoly. The ruling may limit Gazprom to sending 27.5 billion cubic meters of gas through the pipeline per year, out of a maximum capacity of 55 billion.
“I think there are two factors, which could somewhat cool off the current situation. First of all, of course, this is, definitely, completion of certification and the fastest clearance for gas supplies via the completed Nord Stream 2,” Novak said during an official meeting, according to Reuters.
Prices abruptly reversed course when Putin hinted on a state-owned Russian TV that Russia’s state-backed monopoly pipeline exporter, Gazprom, may increase supplies to help Europe avoid a full-blown energy crisis.
“Let’s think through possibly increasing supply in the market, only we need to do it carefully. Settle with Gazprom and talk it over,” Putin said.
Gas prices fell significantly on the back of the announcement dropping by over $700 per thousand cubic meters after historic highs of almost $2,000 per thousand cubic meters on Oct. 6.
The Kremlin’s declaration appears to confirm suspicions that Russia is leveraging supplies of gas in exchange for the completion of Nord Stream 2.
In May, Gazprom had hinted at this energy blackmail tactic, stating that Gazprom would be “able to cover additional demand with the commissioning of Nord Stream 2.”
Russia’s squeeze on Europe has been years in the making. Europe, particularly Western Europe, has become increasingly dependent on gas from Russia. Gazprom supplies nearly 40% of Europe’s gas, 81% of that to Western European countries.
Supplies of gas through Russia’s Yamal-Europe pipeline had fallen by more than half at the end of September, accelerating Europe’s energy crisis and sending brokers scrambling to secure supply for the winter period.
In July, Ukrainian energy think-tank Dixi Group directly accused Russia of throttling supply to encourage European leaders to complete the project.
Olena Pavlenko, the head of Ukrainian Energy think tank Dixi Group, told the Kyiv Post back then that Gazprom’s behavior is evidence of Russia’s attempt at blackmailing Europe.
“These threats were once exclusively used on Russia gas-dependent nations, now they are used against EU countries as well,” Pavlenko said. “It is a serious signal of what Russia’s strategy will be with further gas dependence.
Putin had previously blamed Europe for the increased price of gas, stating that it was the fault of the European gas regulator, a recurring mantra from the Kremlin.
He also urged countries to sign individual long-term contracts with Russia rather than following the EU’s policy against Russia.
While Russia has publicly stated that it will increase gas flows through both existing Baltic routes and Ukrainian transit facilities, it is still only obliged to meet its minimum requirements under the “pump or pay” agreement.
Russia and Ukraine signed a five-year agreement through 2024 that guarantees Russia will transport no less than 40 billion cubic meters through Ukraine each year and must pay Ukraine at least $7.2 billion over the course of the contract.
However, Nord Stream 2 will allow Russia to start bypassing Ukraine after 2024 — or even earlier, if Gazprom breaks the contract, dragging Ukraine into arbitration.
Gas transit volumes through Ukraine have already decreased significantly this year, dropping from 65 to 40 billion cubic meters, according to the Ukrainian gas transit system operator.
