Putin’s Natural Gas Leverage Over The EU Is Not Entirely Gone

• Russia’s leverage over the EU's natural gas supply has been significantly reduced since its invasion of Ukraine, but it still can exert pressure.
• According to the Swedish ban SEB, the threat of Russia leveraging its natural gas industry against Europe this winter is being overlooked by natural gas markets.
• As of September 2, EU gas storage sites were already 93% full, meaning the bloc is well ahead of its storage target, but it is not out of the woods just yet.

Russia could turn to exerting pressure over European natural gas supply this winter when it can, Swedish bank SEB said in a note on Monday.

Gazprom’s gas deliveries to its former key customers in Europe slumped with the halt of Russian pipeline gas exports to nearly all European countries. Weeks after the Russian invasion of Ukraine in early 2022, Russia cut off supply to Poland, Bulgaria, and Finland.

Then Gazprom started to reduce supply via the Nord Stream pipeline to Germany in June 2022, claiming an inability to service gas turbine maintenance outside Russia due to the Western sanctions against Moscow for the invasion of Ukraine.  

Gazprom said in early September that Nord Stream would remain shut until “operational defects in the equipment are eliminated,” before the sabotage on the Nord Stream pipelines at the end of September 2022, which definitely closed all pipeline gas routes of Russia’s gas to Germany.

Russia now delivers gas to Europe via a route through Ukraine and via TurkStream.

“Putin's long-standing goal to use the natural gas supply as a strategic tool appears to have faltered,” SEB strategists wrote in the note today.

However, “Putin might still possess leverage over the EU's natural gas supply,” they added. 

According to SEB, Putin could decide “to strategize this leverage leading into Q4 2023 and beyond.” 

“The significant uncertainty stemming from Russia's heightened aggression toward Ukraine seems to have been overlooked in the EU natural gas pricing. Therefore, as of 31 August, we believe the TTF has potential room for growth on the upside,” the bank’s analysts wrote, referring to the benchmark European gas pricing at the Dutch TTF hub.

The EU has already reached months in advance its target to have 90% full gas storage by November 1, 2023. As of September 2, EU gas storage sites were already 93% full, per data from Gas Infrastructure Europe.  

But in case of a cold winter, Europe could face issues with gas supply, analysts say.

German officials have been warning for months that Europe’s biggest economy is not out of the woods yet in terms of gas supply and that natural gas prices could remain high until at least 2027. 

By Charles Kennedy for Oilprice.com

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