Why is Russia refusing to send more natural resources to Europe

Rising commodity prices are brightening the economic outlook for resource-rich countries. Russia has largely taken advantage of this advantage, especially in crude oil  natural gas. As Europe's most important gas supplier, Gazprom is well placed to make substantial profits. However, the state-owned energy giant has been lukewarm about shipping more gas to Europe, a sign that it may have changed strategy.

In 2020, Gazprom's gas exports dropped to 170 billion cubic meters  1990 billion cubic meters in 2019. Most of the gas is carried  Russia to Belarus  Ukraine via Soviet-era pipelines. With the completion of the Nord Stream pipeline, gas shipments increased by another 55bn cubic metres in 2011,  the fiercely contested Nord Stream 2 pipeline will double the volume to 110bn cubic metres when it becomes operational some time in the next two years.

Economic recovery in Europe has increased demand for commodities, leading to a sharp rise in commodity prices. Although LNG imports have increased in recent years, most gas is still transported by pipeline. Among these exporting countries, Russia has become by far the largest  more influential energy country because of its huge energy industry  excess capacity. Despite the competitive price, Gazprom appears in no hurry to increase production beyond the operating contracts it has signed with European customers.

After an unusually cold heating season, Europe's gas reserves are at historically low levels, further boosting demand for gas in preparation for winter. In addition, parts of Europe are experiencing particularly hot summers, leading to increased demand for electricity for air conditioning operations. Coal plants would normally fill the gap, but since November the price of carbon dioxide in the European Emissions Trading System (ETS) has doubled to €52.  because using natural gas to generate electricity can reduce carbon emissions by 50%, these plants will need more gas.

In the past, Gazprom would quickly increase gas exports to meet additional demand  customers, with the ultimate goal of increasing market share. However, the Russian company has  yet booked a delivery of gas through Ukraine's pipeline system. Nick Campbell, director of Inspired Energy, a consultancy, said: "Until this summer Gazprom had  bought any volumes at the monthly auctions [in Ukraine]. So we can think of this as the strategy to get Nord Stream 2 done."

Elena Burmistrova, Gazprom's head of exports, denied that the company had changed its strategy but acknowledged that customers were demanding more gas. Her statement suggests that "the commissioning of Nord Stream 2" will boost gas exports, according to critics,  confirms Russia's intention to press Europe to complete the pipeline this year.

The project has been delayed by US sanctions. Despite this, Gazprom remains firmly committed to completing Nord Stream 2. Two Russian pipe-laying ships have been working non-stop. According to Matthias Warnig, the chief executive of Nord Stream 2, one has already been completed  the second will be completed in August.

Another reason for Gazprom's reluctance to increase shipments is its new profit-oriented strategy. In the past, increasing market share was their main goal, sometimes at the expense of profit margins. As a result, gas has become a political weapon in several crises in which Russia has relied heavily on Eastern Europe. Gazprom, the state-owned gas company, may now prioritise profit margins over political influence. In that sense, the company's role will be more like that of Opec, except that its influence is limited to Europe,  it has close ties with its customers. The EU's strong focus on sustainability  decarbonisation should have encouraged Russia to maximise the value of its gas while keeping its gas market large enough.

However, it may also be short-term opportunism. The price of natural gas on the European market has risen  $130 per thousand cubic meters in 2020 to $400 per thousand cubic meters at present. The European market is almost certain to be undersupplied in the coming months, which could lead to higher gas prices ,  the EU's point of view, they have no better option.

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Source: International Gas Network