Since the beginning of this week, Europe’s largest gas supplier, Gazprom, has stopped delivering gas to Germany via the Yamal pipeline. Georg Zachmann, an energy expert at, says that this could be based on economic calculations by the Russian state-owned company the independent Brussels think tank Bruegel.
Russia has stopped its gas supplies to Germany through the Yamal-Europe pipeline. What exactly happened there?
Georg Zachmann: According to the capacity bookings for the pipelines, Gazprom did not book any more long-term transport capacities for the gas year 2021/2022 – i.e. from October 1 – via Yamal in the summer. Instead, it only made short-term bookings – and fewer and fewer of them. Since then, the gas flows have decreased significantly: instead of the usual 110 million cubic meters, sometimes less than 30 million cubic meters have flowed. This week the gas flow on the pipeline to Germany was then completely stopped.
What does that mean for Poland, which is mainly supplied via the Yamal pipeline?
Usually, Gazprom does not sell the gas directly to Poland, but to German traders, who in turn deliver the gas to Polish end customers or industrial companies. The gas is booked virtually. Because a bit of that gas is already flowing out in Poland, less Russian gas goes directly to Germany. This virtual gas flow only works if there is an actual gas flow – and it no longer exists. This means that Poland now has to be partially supplied via Germany.
Where does this stop come from?
It is currently unclear exactly why it is the Yamal pipeline. Because Gazprom has other lines of conduct that it can use. Nord Stream 1, for example, which is supplied by the same Russian gas fields, continues to run at full capacity – presumably also because it is a Gazprom pipeline. The Turk Stream line from Turkey is also being used more and more. So overall less gas is being delivered, and the gas that is being delivered flows mainly through Gazprom’s own pipelines.
How does Russia explain the declining gas exports?
The reasons have changed several times during the year. First it was said “we need gas ourselves to fill our storage facilities”, then “there was a technical problem in Siberia” and “we only have gas in the new fields”, then “we need more gas again in Russia”. At the same time, it was suggested that Gazprom could deliver more if Nord Stream 2 went into operation.
And which of these is true now? Some observers suspect political reasons behind the move …
There are actually only two options: either you are unwilling or unable to deliver more gas. It is difficult to verify what is true of this. Overall, however, it can be said that Europe was not treated like a courted customer who was informed about delivery problems at an early stage and with whom one then looked for solutions together. If you add the massive increase in gas exports to Turkey, to be honest, the above-mentioned findings cannot be reconciled with acting “in good faith” for me.
From the Russian side it is said that they are acting for commercial reasons. What are the economic arguments in favor of stopping the flow of gas on the Yamal pipeline?
This brings us back to the question: Is there no gas available or you just don’t want to deliver it. If there is no gas, then that is a commercial reason, if you do not want to deliver it, then that is not a commercial reason. In view of the gigantic high gas prices, Russia would have to send everything it can do without to Europe from a commercial point of view. However, a restriction is necessary here.
And what would it be?
The gas market is structured in such a way that long-term contracts are used that are indexed to the spot price. This means that anyone who wants to be supplied with gas uses a long-term contract; the price is now indexed using the current gas price. With a Gazprom market share of 40 percent, a reduction in deliveries would lead to rising prices in the EU. Gazprom’s calculation could therefore be that the additional income from higher sales is smaller than the lost profit due to lower prices for the quantities sold under long-term contracts. So it could be that it is more profitable for Gazprom to bet on higher prices for long-term contracts and to supply a little less gas in return.
What does that mean for the European gas market in the medium term?
In Europe, attempts have been made to generate a market which, on the one hand, makes it possible to buy from others in the event of problems with one supplier and, in good times, to rely on the cheapest supplier. To achieve this, the liquefied gas terminals have been expanded to a relatively large extent – and so far this model has worked very well. Because we have a crisis with Russia that is having a massive impact on prices, but we are still getting on the gas at this point in time. For example, Norway is now delivering more, also because prices are high. We’ll see in the next few months whether that will be enough.
How secure are we with regard to gas from Russia?
We had already taken a closer look at the winter situation at Bruegel and if Gazprom fulfills its obligations as we perceive them, then you would have to get through a cold winter reasonably well. As the situation presents itself to me, Gazprom would not succeed in causing real supply bottlenecks in the EU if it did not fall below its contractually guaranteed minimum quantities. However, if there are technical problems or Russia decides not to meet delivery obligations, it can become relatively difficult to meet normal demand with the available supply.
The tensions in the Ukraine conflict also play a role in the background of the gas deliveries. Do you expect Russia to cut its gas supplies further in this context?
It would be a painful escalation for Russia not to fulfill its gas supply contracts. Because it would damage the Russian-European energy trade relations in the long term. That is why you will find such an escalation relatively far back on the list of escalation levels.
How badly is Ukraine currently affected by the decline in gas deliveries?
The situation in Ukraine could indeed become a challenge again. If there should be no more gas transit there – which fortunately is stipulated in the contract – then it would be very difficult to supply Ukraine with gas from the west. The Ukrainian gas storage facilities are currently so full that it can barely be enough. However, the problems in the electricity sector are so great that it may be necessary to generate electricity from gas. Then it is uncertain whether the memory will still be sufficient. Since Ukraine is also important in a geopolitical context, it should be included in the overall European perspective.
In other words, what is the scenario that you think we are heading towards in the next few months?
I would like to go back to the current situation. Because I was honestly surprised at how much other flexibilities came into play here. How much more Norway was able to deliver, for example, and how quickly liquefied gas got to Europe despite the tight global markets. This fact could signal to Gazprom that a confrontational strategy cannot win in Europe. If Europe shows that there are enough alternatives and Gazprom is ultimately threatening to squander its market power, that could be a solution for the current situation. That would be the positive scenario.
What should Europe do for that?
To do this, you would have to hold the internal market together, secure more gas supplies and possibly also develop ideas on how to reduce the demand in places where it doesn’t hurt so much. Then you would at least have a better negotiating position. However, many factors can influence the situation in the coming months. If it gets particularly cold this winter or if, for example, a gas field in Norway fails, then that increases the pressure on the markets. The same applies if demand increases more strongly elsewhere, for example in China. That would make the situation even more difficult. So we are currently in a situation where one is no longer completely in control of one’s own fate.
Georg Zachmann is a Senior Fellow at the independent Brussels think tank Bruegel. His research interests include European energy and climate policy, including European emissions trading, the European electricity market and European policy for renewable energies. Christiane Kreder spoke to him.
The interview first appeared at capital.de.