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    Russia’s Nord Stream 2 pipeline won’t solve Europe gas Problem

    Europe is currently facing soaring natural gas prices amid low storage and high demand, with Russia, Europe’s primary gas provider, pushing for certification of its controversial Nord Stream 2 pipeline as a solution to the crisis. However, even if the pipeline were to be approved by regulators, it would not help slow solve the gas crunch, one expert told Al Arabiya.

    Russia has long pushed for Europe to adopt a long-term contract approach, but over the last 10 years, until the beginning of 2021, spot prices have been well below oil-linked prices, often between four to six times less. Spot prices today, however, are now two to four times higher than oil-linked prices, Professor Jonathan Stern, Distinguished Research Fellow at the Oxford Institute for Energy Studies, told Al Arabiya’s Naser El Tibi.

    “So, would Nord Stream really help this? Well, I don’t think so. And the reason is that Nord Stream 2 would, if it was operating, bring gas which is currently traveling through other corridors, particularly in Belarus and Poland and Ukraine, it would bring that gas via the new pipeline,” Stern said.

    “The Russians for the last three or four months do not have additional gas to sell to Europe because they experienced the same winter we had in Europe at the end of 2020-2021 and their storages we’re almost empty.”

    Gas prices have spiked as Europe has sought to replenish stockpiles which were sorely depleted last year after demand spiked due an unseasonably cold winter, while the COVID-19 pandemic added further challenges. Russia provides the European Union with around one third of its gas, and given the current crisis is now pressing for changes in how the EU purchases gas, in addition to calling for approval of Nord Stream 2.

    Currently, Europe purchases gas on the spot market, using spot prices, a strategy which has saved buyers significant costs compared to long-term contracts with oil-linked prices – the alternative strategy for purchasing.

    Overall, the crisis represents an existential threat to the natural gas industry, Stern explained, with the high prices potentially increasing government and consumer enthusiasm to switch to greener energy sources – a trend that is already underway in some European countries.

    “What this crisis may do, particularly if it continues for a long time, is to persuade ordinary citizens who are currently using gas and companies that are using gas for industrial purposes, that moving away from gas should be accelerated. Therefore, this is a dangerous development for the natural gas industry in Europe and potentially problematic for those countries which are currently supplying gas through pipelines and LNG,” Stern said.

    In response to the gas crunch, the EU announced earlier this month that it would discuss plans to set up a strategic gas reserve in a bid to prevent future crises. Europe is heavily dependent on gas imports, with around 90 percent of the continent’s supplies being shipped in. However, Stern believes that the plan is “unrealistic” as it would represent a huge increase in gas storage investment and would not help protect buyers from high prices.

    “The purpose of gas storage is really to compensate for unusually cold weather or the breakdown for particular facility, like an import terminal or a pipeline or a domestic field. Nobody has enough gas storage to last for several months just in order to counteract high prices. So I don’t think it is realistic,” he said.

    In addition, as European countries further push to remove fossil fuels from their energy mix, big investments in gas storage simply don’t make sense, Stern explained, noting that it would take around 20 years of use for new storage to pay back its cost.


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