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Doubts whether or not Russia will pump extra gasoline to Europe as promised

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A worker adjusts a pipeline valve at the Gazprom PJSC Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust-Luga, Russia, on Thursday, January 28, 2021.

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LONDON – Winter is not yet around and Europe is already experiencing a gas market crisis with enormous demand and limited supply, which is putting pressure on prices in the region.

When Russian President Vladimir Putin stepped in on Wednesday and offered to increase Russia’s gas supplies to Europe, regional gas prices fell (up an unbelievable 500% so far this year) and markets breathed a sigh of relief.

Market analysts were quick to suspect that the offer to increase supplies to Europe was likely to put pressure on Germany to certify for use the Nord Stream 2 gas pipeline (which will deliver Russian gas supplies to Germany across the Baltic Sea) while Russia bids the German one Energy regulator approves the $ 11 billion pipeline, a process that could take several months.

Experts also warned that Russia’s offer also shows that Europe is increasingly vulnerable to Moscow’s ability to turn gas supplies on and off at will, more importantly.

Read more: The US was right – Europe has become a “hostage” of Russia over energy, analysts warn

While Russia’s apparent generosity has given gas markets some breathing space, analysts have since concluded that Russia may not even be able to deliver on its promises to deliver more.

“Mr Putin’s comments seem to have comforted the market somewhat. However, whether or not these additional gas supplies are dependent on rapid approval from Nord Stream 2 may not be the main issue, “Adeline Van Houtte, Europe analyst with the Economist Intelligence Unit, said in a note on Thursday.

“Right now the Russian gas market remains tense as its supplies are running low, production is nearing its peak and winter is looming in Russia too, which limits gas export capacity,” she said.

“There is also little evidence that Gazprom – the Russian gas export pipeline monopoly that supplies 35% of Europe’s gas demand – is trying to pump more gas to Europe’s spot buyers through existing routes. Gazprom is unlikely to sell more than around 190 this year Could deliver billions of cubic meters (billions of cubic meters) to Europe, “she said, warning that” European prices are unlikely to cool significantly in 2021 “.

Mike Fulwood, Senior Research Fellow at the Oxford Institute for Energy Studies, also expressed doubts that Russia could deliver more gas to Europe, noting that production was already at record levels.

“Russia faces the same demand pressures” as elsewhere, he noted.

“It was [a] very cold winter in Russia last winter and Russian production is actually at a record level, of course it is significantly higher than last year when demand fell, but it is also higher than 2019 and they also had to replenish their own stocks because of the cold weather, “he told CNBC’s” Squawk Box Europe “.

“So it is extremely questionable whether they can deliver more gas regardless of the route,” he added.

Russia’s reliability as a supplier of energy to Europe has been high on the agenda of political decision-makers in both the region and the US for several years.

The last two US governments have spoken out loudly against the construction of the Nord Stream 2 project, warning that it will reduce Europe’s energy security and increase its dependence on Russia. For its part, the US also wants to increase its own liquefied natural gas exports to Europe.

However, the executive director of the International Energy Agency, Fatih Birol, appeared convinced that Russia could increase gas supplies to Europe, telling the Financial Times on Thursday that the IEA’s analysis suggests that Russia’s exports are up about 15% of peak supplies Continent in winter.

Birol urged Russia to prove itself a “reliable supplier” and said the gas exporter could keep his word if he wanted.

“If Russia does what it suggested yesterday [Wednesday] and increasing the volume to Europe, it would have a calming effect on the market, “he said.” I’m not saying they will, but if they want they have the capacity.

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