Kemp: Forget Russian Intentions, Fundamentals Drove Up Europe’s Gas Price
European policymakers and some traders blame Russia for the low volume of gas stored across the region which has sent both gas and electricity prices surging to record highs.
Russia’s pipeline gas export monopoly Gazprom has met commitments for long-term contracts, its clients confirm. But it has not raced to book extra pipeline capacity for spot buyers, despite European calls for more supplies.
Some policymakers and traders have speculated additional gas has been deliberately withheld to make a diplomatic point and accelerate the approval of the Nord Stream 2 pipeline. Others say Russia has withheld gas to create a shortage, drive up prices and increase export revenues, similar to the way the OPEC+ producer group raises oil prices and its revenues.
The other possibility is Russia has not supplied more gas because it faces its own shortage and wants to rebuild domestic stocks after they were depleted by a cold winter in 2020/21.
There is no empirical way to determine which theory is correct or what Russia’s intentions have been. But whatever the reason, the result is the same: gas is in short supply and European energy prices have hit record levels.
Escalating energy prices are a global phenomenon. Shortages of gas, coal, electricity and to a lesser extent oil are evident across North America and Asia as well as Europe. In every case, very high and rapidly rising prices this year are a reaction to very low and rapidly falling prices last year during the coronavirus-driven recession.
Energy prices have always been strongly cyclical. In this instance, an exceptionally severe cyclical slump in 2020 has produced an equally extreme cyclical upswing in 2021.
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