Why Putin taunts the EU on gas prices
Industry associations fear that the sharp rise in gas prices could jeopardize production and economic recovery. Meanwhile, Putin is pushing Europe to quickly approve Nord Stream 2
“It's a terrible price shock, the cost impact of all companies is really extreme. Compared to last year, we are fivefold. If it continues, it is a risk for the recovery ”. Emma Marcegaglia, former president of Confindustria and Eni and today of the B20, the top of the industrial associations of the top twenty economies in the world, told Corriere della Sera .
THE SITUATION IN EUROPE
Marcegaglia was referring to the increase in energy prices in the world, and in particular those of natural gas in Europe. Yesterday, European gas contracts with delivery in November grew by 25 percent, reaching 155 euros per megawatt hour, up from just 18 six months ago.
In the Old Continent (including the UK), stock levels are on average at 76 per cent, when the 10-year average is around 90 per cent. Considering the energy consumption in the winter season, when the demand for heating increases, storage sites could be 19 per cent full in the spring, a very low and worrying value.
THE IMPACT ON THE CHEMICAL INDUSTRY
The surge in natural gas prices, as also recognized by the European Commission, threatens to undermine industrial activity and economic recovery.
Repubblica today reports the case of the Yara plant – a Norwegian chemical company that produces fertilizers and nitrogen-based compounds – in Ferrara, which will suspend production for 6-8 weeks due to the high costs of the raw material. The chemical industry is “energy-intensive”, that is, it consumes large quantities of energy with which to feed its processes; the Italian one is the third largest in Europe for production (51 billion euros in 2020) and the tenth globally.
THE WORDS OF FEDERACCIAI AND FERALPI
Alessandro Banzato, president of Federacciai, the federation of Italian steel companies, said that "if the growth in prices [of gas, ed ] continues as in this last period, it is a matter of days to evaluate if and how to stop the plants for excessive level of production costs ". He then invited us to pay attention, “because the recent hikes in gas and electricity costs could slow down, if not compromise, the positive trend of the Italian economy, as well as the European one”.
According to Giovanni Pasini, managing director of Feralpi, a Lombard company specializing in steel for construction, "we have reached the point where production blocks in the time slots of the day when energy prices are highest cannot be ruled out" .
THE APPEAL OF CONFINDUSTRIA CERAMICA
Giovanni Savorani, president of Confindustria Ceramica, appealed to Mario Draghi's government: "Just as there have been interventions on citizens' bills to freeze part of the increases in electricity and gas", he said, "in the same way we should intervene in favor of businesses, at least until prices drop. Otherwise, stopping will be inevitable, just think that many of our companies sign annual contracts for the supply of gas and now they should go and negotiate it again while prices are at their highest ".
Savorani proposes "an intervention to sterilize part of the VAT or the costs of permits to pollute", or the CO2 emission quotas traded in the European ETS market, which also increased in price: last August it reached 60 euros per ton of CO2; in September 2020 it was around 28 euros. The rise obviously weighs more on the energy-intensive sectors, which consume large quantities of fossil fuels.
THE EXCHANGE OF EUROPE-RUSSIA ACCUSATIONS ON GAS
Europe is heavily dependent on natural gas imports to meet its energy needs, and is mainly supplied by Russia. The European Commissioner for Energy, Kadri Simson, recently recalled that Moscow is indeed complying with long-term supply contracts, but has not booked new export capacity despite the increase in prices (from which it could gain an economic advantage).
“We are very grateful that Norway is increasing its production [of gas, ed ], but this does not seem to be the case with Russia,” added Commission President Ursula von der Leyen.
In response, Russian President Vladimir Putin blamed the situation on the energy transition from fossil to renewable sources, the "unbalanced decisions" of the European authorities and the "hysteria" of the continent's markets. Yesterday he said Russia could potentially export record volumes of natural gas to Europe.
His statements, however, in order to be understood, must be judged in their entirety and contextualized.
WHAT PUTIN AND NOVAK SAID ABOUT NORTH STREAM 2
Russian Deputy Prime Minister Alexander Novak, former Energy Minister from 2012 to 2020, said swift approval of the Nord Stream 2 gas pipeline between Russia and Germany would lower fuel prices. However, this is a very controversial conduct, because it would give Moscow greater power over Europe and would allow it to isolate Ukraine, which until now was an important transit area for Russian gas.
Many analysts – and Novak's words seem to confirm this – think that Russia is voluntarily reducing gas supplies to Europe to "push" Nord Stream 2, presenting it as a necessary infrastructure for the energy security of the Old Continent. Unlike Novak, Putin did not make explicit connections between the increase in supplies and Nord Stream 2, but said that the routes passing through Ukraine are more expensive and more polluting (Brussels is careful about both).
THE GAS CONTRACTS
Putin thinks that Europe was wrong to break away from long-term gas supply agreements, opting instead for the spot market (where the sale is immediate): a "mistake", according to the Russian president.
State-owned gas energy company Gazprom does not like the spot market, preferring long-term contracts, which can last up to twenty-five years.
As acknowledged also by the European Commission, Gazprom is fulfilling long-term contracts, but has not booked new export capacity. For example, it has recently booked only one third of the transit capacity made available for October by the Yamal-Europe pipeline (31.4 million cubic meters out of 89) and no extra transit capacity via Ukraine (it is not the first time).
Putin said it would be economically disadvantageous for society to transport natural gas for old pipelines, such as those on Ukrainian territory; the new pipes, he argues, also make it possible to reduce CO2 emissions into the atmosphere by 5.6 times.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/putin-gas-prezzi-europa/ on Thu, 07 Oct 2021 08:25:06 +0000.