Will Nord Stream 2 approval reduce the price of gas in Europe?

Nord Stream 2 coming online could help reduce soaring gas price in Europe
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Unless you have been living under a rock for the past few months, then you will know that the price of gas in Europe has hit an all-time high and British-based energy companies are being forced out of business. Could the Nord Stream 2 pipeline help avert further rises in the price of gas?

Russia certainly seems to think. Scarcity of supplies is one of the reason why the price has been driven so high, so it seems logical that if Europe suddenly has a means of boosting imports of gas, then the price will drop to reflect that it is no longer such a precious commodity.

Both President Putin and Russia’s deputy prime minister Alexander Novak have linked Nord Stream 2 being given regulatory approval to start operating with the lowering of gas price.

The pipeline delivering Russian gas straight to Germany is completed but awaits certification by German and European Union authorities. For approval to be given, Nord Stream 2 has to meet EU competition regulations.

Mr Novak told the Russian Energy Week conference in Moscow: “I think there are two factors, which could somewhat cool off the current situation.”

“First of all, of course, this is, definitely, completion of certification and the fastest clearance for gas supplies via the completed Nord Stream 2.”

President Putin meanwhile said: “Of course, if we could expand supplies along this route (Nord Stream 2), then, 100 percent, I can say with absolute certainty, the tension on the European energy market would significantly decline, and that would influence gas price, of course. This is an obvious thing.”

Suspicions remain in Europe that Russia may be deliberately holding back natural gas from the market to pressure approval of Nord Stream 2. The comments of President Putin and Mr Novak will do little to alleviate those fears.

German chancellor Angela Merkel has backed Russia, saying it could only deliver on the basis of “contractual commitments” which were currently being honoured.

All the while accusations have been levelled at Russia, President Putin has reiterated that his country has always been a reliable supplier to Europe.

Moscow’s willingness to increase supplies through existing pipelines including Ukraine to help ease the crisis means that Europe could well receive record-high levels of gas from Russia in 2021, even without Nord Stream 2 coming online.

Nord Stream 2 is controversial for several reasons. Whereas other lines must cross Eastern European countries such as Ukraine – who receive vital transit fees for their troubles – the new pipeline travels underneath the Baltic Sea. No transit fees, no reliance on other nations.

As a result, the United States has previously viewed Nord Stream 2 as more than simply a pipeline. The Trump Administration issued concerns at surging European dependence on Russian gas brought about by the increase of supplies. The US said this will make it harder for Germany and other NATO members to stand up to Russia in the future.

There is also the political aspect and what it means for Ukraine, whose relations with Russia have already become strained due to the annexing of Crimea and the conflict in the east of the country.

With Nord Stream 2 operational, Russia could stop transporting gas through Ukraine and deny the country the transit fees which they so rely on.

That is when pipeline politics come into play – Russia will keep pumping gas through Ukraine and paying transit fees, as long as Ukraine do not upset the Kremlin too much. Say, by attempting to join the European Union, as President Zelenskiy has stated is his country’s aim.

President Putin is even on record as saying that the age of the existing pipeline system in Ukraine means that pipes could “burst” at any time.

Were that to happen, there would be little appetite to carry out pipeline repairs. Supply would instead be diverted to Europe via Nord Stream 2 (when approved) and the Yamal-Europe Pipeline passing through Belarus and into Poland.

During the pandemic, gas exports from Russia to Europe fell because there was less demand. Workplaces and factories were shut because of lockdowns.

Lower level of supplies have continued across 2021, despite a cold winter last year leaving gas stocks across Europe depleted at around 75 percent of capacity.

With demand now starting to increase as economies rebound and factories ramp up production, supplies are struggling to keep up with demand and that has sent prices rocketing.

Europe is also facing increased competition for gas from other parts of the world, such as Asia and the Middle East. This too is driving prices to reach record levels.

The price of Dutch wholesale gas peaked at an all-time high of more than £125 a megawatt hour on Wednesday 6th October.

The UK is less reliant than Europe on supplies from Russia, who supply only 5 percent of the nation’s gas. Britain though is not immune from rising energy costs.

Around 15 million households have seen energy bills rise by 12 percent in October alone. Analysts forecast a 30 percent increase is likely over the next year.

Energy companies cannot pass the rise in wholesale gas prices onto customers because of the UK energy price cap, currently set at £1277 a year. 12 firms have subsequently collapsed as a result.

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