Save for later Print Download Share LinkedIn Twitter Gazprom’s decision to book limited export pipeline capacity for next month pushed European gas prices to over $25 per million Btu, or $900 per thousand cubic meters, on Sep. 20, more than six times higher than $3.90/MMBtu a year ago. With the launch date of the controversial Nord Stream 2 pipeline still up in the air, Gazprom signed up for only one-third of capacity in the Yamal-Europe export pipeline and no extra transit capacity in Ukraine for October.Gazprom’s restricted supply is not the only factor driving prices higher — limited LNG and Norwegian gas imports, a lack of wind in the North Sea and a high carbon price also contributed. But Gazprom appears the main target of criticism, reflecting the ever-growing political tensions between Moscow and the West and the perception of Russian gas as an “energy weapon” of the Kremlin.Whether Gazprom is unable or unwilling to cover incremental demand, financial gains for the state-run giant are obvious, even though its long-term contract prices remain quite a bit below spot prices. Gazprom forecasts the full-year export price at around $270/Mcm, up from $134/Mcm in 2020, but may raise that. The finance ministry puts an even more conservative gas price forecast into the 2022 budget — $208.4/Mcm, just marginally higher than the 2021 forecast of $208.3/Mcm.Kremlin DividendsPrices may hit new highs as Europe enters the heating season with a deficit of gas in storage, Gazprom CEO Alexei Miller said on Sep. 17. That only boosts the company's optimism about its financial health in 2022 and allows it to raise spending on key projects while also appeasing the Kremlin with promises of record dividends. Gazprom plans, pending board approval, to increase its 2021 investment program by 31% from the initial target to 1.185 billion rubles ($16.2 billion).For other Russian producers, high European prices represent an opportunity to renew discussions over access to lucrative pipeline gas exports. State-run Rosneft again asked the Kremlin to let it into Gazprom’s export pipes, arguing that it would help Russia to earn even more revenue from the high prices. Deputy Prime Minister Alexander Novak has suggested the request might be approved “as an experiment,” business daily Kommersant reported this week.Gazprom’s obvious financial gains prompt critics to accuse it of manipulating the market. Around 40 of the European Parliament’s 700 members wrote a letter last week urging the European Commission to initiate a probe into Gazprom’s role in the gas price rally.Accusations look dubious, given the limited supply from other sources as well. Gazprom insisted it fulfills contractual obligations and strives to cover extra nominations if there is available capacity. Russia could still do more to ease the tight market, the International Energy Agency (IEA) said on Sep. 21. “This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market,” the IEA said.Gazprom exported 125 billion cubic meters to Europe, including Turkey, in January-August, up 16% from the first eight months of a disastrous 2020 but nearly 2% down from precrisis 2019 levels (see graph).Further TighteningIn October, the supply will be even tighter. Gazprom on Sep. 20 booked only around 31 MMcm/d of capacity in the Yamal-Europe pipeline for October, meaning flows via the route should drop by around 60% from current levels. Gazprom didn’t book any extra transit capacity in Ukraine for October.Some observers believe Gazprom might seek to speed up the launch of the Nord Stream 2 line to Germany by tightening supply, but others suggest it doesn’t have enough production capacity available to cover simultaneous demand spikes at home and abroad. “Russian gas output has risen robustly and has been close to its maximum productive capacities but the necessity to fill the depleted domestic gas storage facilities in the third quarter of 2021 limited the availability of Russian gas for Europe when it was most needed,” Oxford Institute of Energy Studies senior research fellow Vitaly Yermakov wrote in a note this week.Gazprom produced an average 1.37 Bcm/d in the first 15 days of September, up from 1.26 Bcm/d in August and close to its maximum capacity of 1.5 Bcm/d, Energy Intelligence calculates. It injected 325 MMcm/d into domestic storage and sold 402 MMcm/d at home. Injections should continue until Nov. 1, while the start of the heating season could boost domestic sales to around 670 MMcm/d in October, which might indeed leave less gas for export.Physical flows to Europe, excluding Turkey, were at 399 MMcm/d in the first 15 days of this month, growing to 420 MMcm/d over the past week, according to Gazprom’s data. Turkey might have imported some 80 MMcm/d, while up to 100 MMcm/d is understood to flow to former Soviet Union republics and 30 MMcm/d to China.