Letter: Energy crisis in Europe should not be blamed on Gazprom
Despite my admiration for Fatih Birol and the work of the International Energy Agency, it is important to set the record straight as to who is responsible for the current model of the European gas market, which has produced the price levels high of the past year (Report, January 13) .
Ten years ago, the EU-Russia Gas Advisory Council was set up to discuss the implications for Gazprom’s exports to Europe of the introduction of the EU’s ‘third energy package’. As EU ‘spokesperson’, I remember many months of listening to our Russian counterparts tell us that abandoning long-term contracts and moving from oil-linked prices to market prices was very bad ideas. We ignored these warnings and continued to create market centers and moved long-term contracts from oil-related prices to spot prices. For 10 years we were right, apart from a few months. Hub prices were significantly lower than oil prices.
As recently as May 2020, oil-related prices were nearly six times higher than hub prices which were at historic lows. The continent was flooded with gas. Long-term contracts requiring gas to be taken or paid for were the last thing anyone wanted, and Gazprom was losing money on exports. From the end of 2020, this situation has changed. But the fact is that Gazprom has always invited European companies to sign new long-term contracts if they want to be assured of their supply.
Very few have done so, and national and corporate greenhouse gas reduction goals and policies will make such future commitments increasingly untenable. Again, this is a European choice and not imposed or created by Russia. Complaints about Gazprom’s refusal to make additional supplies available and maintain high levels of gas in European storage fail to recognize that the current market model contains no obligation to do so.
None of this to deny that there are geopolitical motivations linked to Nord Stream 2 and the general state of relations with Europe.
Indeed, for 10 years, the gas market model has benefited European consumers. Over the past year, the opposite has been the case and Gazprom (and all other suppliers) have reaped the benefits.
Such are the fluctuations and roundabouts of the commodity markets.
Professor Jonathan Stern
Oxford Institute for Energy Studies
EU Chairman for the EU-Russia Gas Advisory Council 2011-15