Europe was already facing a gas crisis in winter. The risks have gotten even higher

European natural gas futures ended nearly 18% higher on Tuesday and rose again on Wednesday. Wholesale prices in the UK also emerged. They are now returning to record levels seen in early October, when some factories in Europe and the UK closed because their operations were not profitable.

The concern reflects growing uncertainty: As a colder climate sets in, will the region be able to get the energy it needs to power buildings and businesses and heat homes in the middle of a global fight for fuel?

“The markets are incredibly nervous,” said Nikos Tsafos, an energy and geopolitics expert at the Center for Strategic and International Studies in Washington DC. “The lack of certification adds to that 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 a legal technicality. But the move will delay the date when the gas is expected to start flowing, a tipping point that analysts say could mitigate energy shortages in Europe.

“The timeline for the pipeline startup now seems longer than we initially expected,” Goldman Sachs strategists wrote in a research note.

They now predict that gas will begin to flow along the pipeline in February 2022, although some analysts believe it will be even later. That means that supply cannot be counted on to increase in the coming months, a period that was already going to be a challenge.

“Nord Stream 2 is the gas pipeline that can change the supply game in Europe and tip the balance, so the delays in its use mean that the current conditions of the tight gas market will persist through the winter,” said Carlos Torres Díaz, head of gas and energy markets. at Rystad Energy.

The importance of Nord Stream 2

The European Union obtains around 40% of its imports natural gas from Russia, and even as it shifts to cleaner energy sources, that dependency is expected to remain intact.

Construction of Nord Stream 2 by Gazprom, which is controlled by the Russian state, started in 2018 and was completed in September. It is set to deliver 55 billion cubic meters of gas per year directly from Russia to Europe.

The pipeline has always been controversial because it bypasses Ukraine, prompting countries like the United States to warn that it will increase Moscow’s influence in the region. But it had been speculated that the approval process for the start of operations could accelerate as natural gas prices in Europe soared due to weather patterns and an increase in demand as closures were lifted.

“We don’t have enough gasoline right now, frankly. We are not stockpiling for the winter period,” Jeremy Weir, chief executive of energy trading company Trafigura, told a conference organized by the Financial Times this week. “So there is a real concern that … if we have a cold winter, we could have continuous blackouts in Europe.”

CSIS’s Tsafos said there was never much clarity on whether the gas from Nord Stream 2 could actually ease the situation in the coming months. But the certification delay adds to concerns that Russia will not go beyond its contractual obligations to supply gas to Europe at a difficult time, as some expected.

“We are in an environment a little more suspicious of what will come out of Russia this winter,” Tsafos said.

Eurasia Group’s Henning Gloystein said the amount of gas reaching Europe from Russia this winter should not be affected, but acknowledged that the situation remains politically tense.

“By suspending the approval process for Nord Stream 2, the German regulators and probably also their new incoming government are signaling that they are unwilling to give in to Russian pressure to speed up the approval of the gas pipeline,” he said. “He also points out [to] its allies in Poland, Brussels and Washington that Berlin is not deaf to its criticism of the pipeline. “

Whats Next?

Development further clouds the prospects for Europe in the short term.

Experts, anti-poverty organizations and environmental activists have warned that millions of people in Europe can not being able to afford to heat their homes this winter due to the jump in gas and electricity prices.

Recent research led by Stefan Bouzarovski, a professor at the University of Manchester and president of the energy poverty research network Engager, found that as many as 80 million households across Europe were already struggling to keep their homes adequately warm before the pandemic.

The current price hike could make matters worse, although governments have taken steps to offset higher costs or put a cap on bill increases.

Rystad Energy predicts that the Nord Stream 2 delays could even affect the energy market beyond this winter, and predicts that certification will now be completed around April at the earliest. Eurasia Group also believes that operations are likely not to begin until the second quarter of 2022.

That would prolong the fight for liquefied natural gas, which is currently in extremely high demand.

“Europe may be forced to remain dependent on an already tight liquefied natural gas market, suggesting a greater likelihood of a sustained high price environment for much of the first half of next year if Europe emerges with severely depleted storage,” Rystad Energy said.

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