Putin says global gas market is not balanced

Russia, a major natural gas supplier to the European economy, does not see the gas market as “balanced and predictable,” Russian president Vladimir Putin said October 13.

Putin spoke at the plenary session of Russian Energy Week, addressing a surge in commodity prices that shows few signs of letting up. Seated at the table alongside members of the Organisation of the Petroleum Exporting Countries, a group known as OPEC+, Putin said broad-based collaboration among major producers provided some degree of market stability.

“As distinct from oil, the situation in the gas market, primarily in Europe, does not yet look balanced and predictable,” Putin said. “The main reason for this is that not everything in this market depends on producers: gas consumers are playing an equal and even bigger role.”

 Putin’s point speaks to concerns about the so-called energy transition, with big energy companies like BP and TotalEnergies investing more in renewable forms of energy. Given shareholder pressure to reduce emissions, energy companies may be spending less on crude oil and natural gas production and more on renewables, creating supply-side concerns.

In Europe, Putin said, the use of renewable energy has “skyrocketed,” which would on the surface be a good thing. But renewable forms of energy such as wind and solar are intermittent, leaving electricity grids vulnerable to weather-related factors. 

The European community is not convinced by Russia’s stated position, even after Putin offered assurances about adequate supplies.

“We consistently work to strengthen the energy security of the entire European continent,” Putin said. “Major infrastructural projects – Turk Stream, Balkan Stream, Nord Stream 1 and Nord Stream 2 – are being implemented jointly with European companies, our partners and friends.”

All of those natural gas pipelines are billed by their supporters as boons to European energy security, particularly as they avoid geopolitically-sensitive territory in Ukraine. Ukraine hosts a dense network of Soviet-era pipelines that can deliver natural gas to the European market, but disputes over contracts and Russia’s annexation of the Crimean Peninsula in 2014 add a layer of geopolitical risks to those networks. 

Separately, the International Energy Agency (IEA) said in its World Energy Outlook 2021 the energy transition will require “careful sequencing” to ensure that a change in one segment of the sector does not undermine progress elsewhere. 

Still, the Paris-based agency said that power plants that rely on natural gas will remain a “mainstay” of electricity security because they can serve as a stop-gap measure should renewables fail. 

“This underscores the need for market designs that recognize the flexibility value of existing infrastructure even as the focus turns to developing innovative options that can replicate the services that natural gas provides,” the IEA’s report read.

 The EU, however, contends that the energy transition is “the best assurance” against price shocks. The same day that Putin addressed the Russian energy forum, the European Commission adopted a so-called toolbox meant to strengthen market resilience against future price shocks – a toolbox which still contains natural gas. 

“While cheaper renewables play an increasing role in supplying the electricity grid and setting the price, other energy sources, including gas, are still required in times of higher demand,” the EC said. 

Finally, a report from the US Energy Information Administration (EIA) suggests the domestic market is also starting to feel the squeeze. The agency said that household expenses for all major home heating fuels are expected to “increase significantly” this coming winter. 

Spending on propane is expected to increase by 54%, heating oil expenditures will rise by 43%, natural gas by 30% and electricity by 6%, relative to last year.

The bull run for commodities, however, may be transitory, the EIA notes. It raised its estimate for US benchmark natural gas prices by about 45% from an earlier forecast, but suggested the price would moderate from the current price of around $5.50/mn Btu to about $4.00/mn Btu next year as domestic production increases and LNG exports decline.