European natural gas futures ended up nearly 18% on Tuesday and rose again on Wednesday. UK wholesale price also jumped. They are now returning to record levels recorded in early October, when certain factories in Europe and the United Kingdom were closed because their operations had become unprofitable.
The unease reflects growing uncertainty: as cold weather sets in, will the region be able to secure the energy it needs to power buildings and businesses and heat homes amid a backdrop of climate change. global fuel rush?
“The markets are incredibly nervous,” said Nikos Tsafos, energy and geopolitics expert at the Center for Strategic and International Studies in Washington DC. “The lack of certification adds to this anxiety. “
Germany’s decision not to approve Nord Stream 2 for now because the pipeline operator is based in Switzerland appears to be based on legal technicality. But the move will delay when gas is expected to start flowing – a turning point that analysts say could ease Europe’s energy shortages.
They are now predicting that gas will start flowing along the pipeline in February 2022, although some analysts believe it will be even later. We cannot therefore count on him to relaunch the offer in the coming months, a period which was already shaping up to be difficult.
“Nord Stream 2 is the gas pipeline that can change the supply game in Europe and tip the scales, so delays in its use mean that current gas market conditions will be strained throughout the winter”, said Carlos Torres Diaz, head of gas and electricity markets. at Rystad Énergie.
The importance of Nord Stream 2
The European Union obtains around 40% of its imports natural gas from Russia, and even during its transition to cleaner energy sources, this 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 is expected to deliver 55 billion cubic meters of gas per year directly from Russia to Europe.
The pipeline has always been controversial as it bypasses Ukraine, prompting countries like the United States to warn that it will strengthen Moscow’s influence in the region. But there had been speculation that the approval process to start operations could be speeded up as natural gas prices in Europe skyrocketed due to weather conditions and increased demand as lockdowns were up.
“We don’t have enough gas at the moment, quite frankly. We don’t store for the winter period, ”Jeremy Weir, CEO of energy trading firm Trafigura, said at a conference hosted by the Financial Times this week. “So there is therefore a real concern that… if we have a cold winter, we could have power outages in Europe. “
Tsafos of CSIS said there had never been much clarity on whether Nord Stream 2’s gas could really alleviate the situation in the months to come. But the delay in certification adds to fears that Russia will not go beyond its contractual obligations to supply gas to Europe at a difficult time, as some had hoped.
“We are in a slightly more suspicious environment with what is coming out of Russia this winter,” Tsafos said.
Henning Gloystein of Eurasia Group said the amount of gas coming from Russia to Europe this winter is not expected to be affected, but acknowledged that the situation remains politically tense.
“By suspending the approval process of Nord Stream 2, German regulators and probably also its new incoming government signal, they are unwilling to give in to Russian pressure to speed up the approval of the pipeline,” he said. . “This also signals [to] its allies in Poland, Brussels and Washington that Berlin is not deaf to their criticisms of the pipeline. “
This development further darkens the prospects for Europe in the short term.
Experts, anti-poverty organizations and environmental activists have warned that millions of people across Europe may not be able to afford to heat their homes this winter due to soaring gas and gas prices. ‘electricity.
Recent research by Stefan Bouzarovski, professor at the University of Manchester and chairman of Engage energy poverty research network, found that up to 80 million households across Europe were already struggling to keep their homes. hot enough before the pandemic.
The current spike in prices could make matters worse, although governments have taken steps to offset rising costs or cap bill increases.
Rystad Energy predicts that Nord Stream 2 delays could even impact the energy market beyond this winter, predicting that certification will now be completed around April at the earliest. Eurasia Group also believes that operations are unlikely to start until the second quarter of 2022.
This would prolong the rush for liquefied natural gas, which is currently in high demand.
“Europe may be forced to continue to depend on an already tight liquefied natural gas market, suggesting an increased likelihood of a sustained high price environment for much of the first half of next year if l ‘Europe is coming out with severely depleted storage,’ said Rystad Energy.