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Gazprom: Europe to Blame for Low Yamal Gas Flows

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Russian gas giant Gazprom has echoed President Vladimir Putin's argument that Europe's energy crisis is a problem of its own making.

In an interview with the Rossiya 1 TV channel, Gazprom spokesman Sergei Kupriyanov said the suspension of westward flows of Russian gas into Germany via the Yamal-Europe pipeline reflect a lack of buying interest.

Westward shipments of gas via the pipeline have now been suspended for seven straight days, driving spot natural gas prices to record levels.

European electricity prices — which closely track gas prices — have also surged in recent weeks and months.

Kupriyanov said accusations that Gazprom has deliberately withheld gas from Europe are "groundless and unacceptable and, simply put, lies."

Nord Stream 2

Some politicians and pundits have suggested that state-controlled Gazprom has been taking advantage of its position as Europe's biggest gas supplier to rein in volumes and drive prices higher.

They argue that Gazprom and Russia have also sought to keep supplies tight to pressure Germany and the EU into expediting final approval of Gazprom's new Nord Stream 2 gas pipeline.

Putin has countered that European policymakers sowed the seeds of the energy crisis by making the region too dependent on renewables and favoring spot gas purchases over long-term contracts with Gazprom.

Kupriyanov said westward flows via Yamal-Europe had dried up because buyers had not been placing daily nominations for Russian gas.

Putin noted that some gas has been flowing eastward on Yamal-Europe from Germany to Poland and suggested that some of it could be ending up in Ukraine, which ended direct purchase from Russia in 2015.

Putin suggested that traders were generating billions of dollars in profits on such deals because the price paid for gas under Gazprom's long-term contracts was much lower than recent spot market prices.

Price Gap

Buyers have indeed reduced their daily nominations, but that is largely because Gazprom's hub-linked prices are now too high, making gas injected into storage during the summer a significantly cheaper option.

Gazprom itself acknowledged last month that high prices had started to erode demand for gas, including pipeline deliveries from Russia.

The company's prices are indeed lower than spot market prices, but not by as much as Putin has suggested.

More than 80% of Gazprom's exports this year are priced off gas hubs, with almost 50% linked to spot prices.

Energy Intelligence estimated Gazprom's average price at the German border at around $19.8 per million Btu for December, down from $23.3/MMBtu in November but up from $17/MMBtu in October.

The Dutch TTF spot price was $29.7/MMBtu at the start of December, $21.8/MMBtu in early November and $30/MMBtu in early October.

Value Over Volume

Gazprom's critics say it appears to have been pursuing a value-over-volume policy this year.

It has not shipped any extra gas via Ukraine and it has allowed its its own storage facilities in Europe to become depleted. It has also opted not to sell significant volumes in the spot market to increase its market share.

Gazprom's strongest argument in its defense is that it has met all of its contractual obligations and has no obligation to sell additional volumes.

That is also true of its Ukrainian transit volumes, which recently exceeded the contractual ship-or-pay level of 40 Bcm for this year.

Kupriyanov also noted that Gazprom's 2021 exports to Germany, Italy, Turkey, Bulgaria, Serbia, Denmark, Finland and Poland have exceeded 2020 levels.

Nevertheless, the company's overall 2021 exports to Europe, including Turkey, will barely exceed last year's level of 175 Bcm and will fall far short of pre-pandemic levels of around 200 Bcm/yr.

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