Europe struck by gas hunger again

After the 2008 crisis, deliveries of Russian gas to Europe kept steadily declining. There was more than one reason: recession which reduced the European economy’s consumption of energy-carriers and competition on the part of cheap coals and renewable energy whose manufacture is subsidized by the governments.

Finally, the downward trend has been reversed. Experts are not surprised. The cold winter is making Europeans use more gas again, Deputy Director of the Institute of Energy Strategy Alexei Gromov says.

“Winter is extremely cold this year, December is the proof already. There are no indications that January or February would be warmer in Europe. The second factor is the prices. In the second half of 2012 the price forecast for 2013 was revised with lower prices, which is a good cue for European consumers.”

Announcer: According to the information circulated in the media, next year the average price of Russian gas would be $370 for a thousand cubic metres. Last spring Gazprom forecast the average 2013 price at the level of $405-415 for a thousand cubic metres. Gazprom has been using a flexible price policy for several years to encourage its clients’ loyalty, Director of the National Energy Security Foundation Konstantin Simonov says.

“The price adjustment policy is 3 years old already. Gazprom does not sit twiddling its thumbs, it meets its clients wishes. Practically all consumers of Russian gas have received amended contracts, discounts and more serious price pegging to spot prices. Some consumers have even been privileged twice. Even problematic countries, such as Poland, received a 16% discount for gas this year.”

Many experts consider the price policy the key factor in relations between Gazprom and its customers in the Old World. Europeans are not happy with long-term contracts when gas prices are pegged with oil prices. Oil is rather expensive now and Europeans would like Gazprom to use the so-called spot prices when the gas price is determined at stock exchanges. As a matter of fact, about six years ago when oil was much cheaper, long-term contracts did not give rise to complaints.

Anyway, the main issue is how long the upward trend will last and if Europe will increase gas consumption or reduce it as soon as the cold weather subsides. Konstantin Simonov suggests operating with long-term trends, rather than restricting the forecast to 2013. Long-term trends speak in favour of growing gas consumption.

“If we forget 2013 and speak about the situation in the future, gas consumption on the Russian market will grow. Europeans themselves admit this. It is very important to preserve one’s share of a growing market, so dumping is not the best policy in this respect. We should use a careful, reasonable abatement policy. On the other hand, it is stupid to halve the price or even bring it down threefold.”

The main future factor will not be the weather or the suppliers’ price policy. It will be the state of the Old World economy. 2013 is promising to be difficult, experts forecast that economic growth would be around 1%. However, no cataclysms are expected either, such as the eurozone collapse or the aggravation of the crisis. Cost saving and making investments in the economy ought to yield positive results in the end.