Russian energy giant Gazprom (GAZP.MM) said on Tuesday that Europe, which used to be its main source of revenue, is short of natural gas and may face challenges, more than a year after the Nord Stream pipelines were damaged by mysterious blasts.
Gazprom’s gas exports almost halved last year to 100.9 billion cubic metres (bcm) due to political fallout with Europe over Ukraine and after the undersea Nord Stream pipelines, the largest singe gas exporting route for Russia to European market, were blown up in September 2022.
“The fact that the systemic deficit has not gone away is manifested not only by the higher price level in 2023 compared to the pre-Covid years, but also by the persistence of a stable contango in the natural gas market,” Sergei Komlev and Alexander Shapin, Gazprom’s senior managers, said in an inhouse magazine.
Contango is a market structure in which longer-dated futures trade at a premium that encourages traders to keep the commodity in storage for more profitable resale in the future.
“This price behaviour means that, according to market participants, the energy security system in Europe, built in an emergency mode, is unstable and faces new challenges,” the Gazprom managers said.
Before the start of what the Kremlin calls a special military operation in Ukraine in February 2022, Russia sent around 155 bcm of gas to Europe each year, mostly via pipelines, according to EU figures.
In 2022, piped gas imports to the EU dropped to 60 bcm. This year, the EU expects them to fall to 20 bcm.
To compensate for the shortfall, Europe turned to other sources, including sea-borne liquefied natural gas (LNG).
Gazprom’s managers said the breaking of ties with Russia led to weaker security in natural gas imports in Europe due to a sharp increase in the share of “less reliable” LNG in comparison with pipeline gas, which, unlike liquefied gas, is supplied mainly under long-term contracts.