FROM CNBC ---Russia offered to pump more gas to Europe. But...

FROM CNBC

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Russia offered to pump more gas to Europe. But analystsdoubt that’s ever going to happen

KEY POINTS

Europe is experiencing an energy crisis with bumperdemand and limited supply prompting a squeeze on gas prices in the region.

Russian President Vladimir Putin stepped in on Wednesday,offering to increase Russia’s gas supplies to Europe.

Analysts doubt that Russia can, and will, deliver on thatoffer.

LONDON — Winter isn’t even upon us yet and Europe is alreadyexperiencing a gas market crisis with bumper demand and limited supply,prompting a squeeze on prices in the region.

So when Russian President Vladimir Putin stepped in onWednesday, offering to increase Russia’s gas supplies to Europe, regional gasprices (up a staggering 500% so far this year) fell and markets breathed a sighof relief.

Market analysts quickly suspected that the offer to increasesupplies to Europe was likely intended to put pressure on Germany to certifythe Nord Stream 2 gas pipeline (which will take Russian gas supplies to Germanyvia the Baltic Sea) for use, as Russia is waiting on Germany’s energy regulatorto authorize the $11 billion pipeline, a process that could take severalmonths.

Experts warned that Russia’s offer demonstrated that Europeis increasingly vulnerable to Moscow’s ability to turn on — and off, moreimportantly — gas supplies as and when it wants.

While Russia’s apparent largesse might have offered gasmarkets some respite, analysts have since noted that Russia might not even beable to deliver on promises to supply more.

“Comments from Mr. Putin appear to have provided somecomfort to the market. However, whether these additional gas supplies depend ona quick approval of Nord Stream 2 or not may not be the main issue,” AdelineVan Houtte, Europe analyst at the Economist Intelligence Unit, said in a noteThursday.

“Currently, the Russian domestic gas market remains tight,with its inventories running low, output already near its peak and winterlooming in Russia as well, limiting gas export capacity,” she said.

“There is also little sign that Gazprom — the Russian gasexport pipeline monopoly, which supplies 35% of European gas needs — isattempting to pump more gas to Europe’s spot buyers via existing routes, andoverall given its small room for manoeuver, it is unlikely that Gazprom coulddeliver more than around 190bcm (billion cubic meters) to Europe this year,”she said, warning it meant “European prices are unlikely to cool substantiallyin 2021.”

Mike Fulwood, senior research fellow at the Oxford Institutefor Energy Studies, also expressed doubts that Russia was able to supply moregas to Europe too, noting that production was already at record levels.

“It was [a] very cold winter in Russia last winter andRussian production is actually at record levels, it’s well up on last year ofcourse when demand was down, but it’s also up on 2019 levels, and they’ve beenhaving to refill their own storage as well which was depleted badly because ofthe cold weather,” he told CNBC’s “Squawk Box Europe.”

“So it’s extremely doubtful whether they could supply moregas, whatever the route,” he added.

Russia’s reliability as an energy supplier to Europe hasbeen high on the agenda for policymakers, both in the region and the U.S., forseveral years now.

The last couple of U.S. administrations have been vocal intheir disapproval of the construction of the Nord Stream 2 project, warningthat it will reduce Europe’s energy security and increase its dependence onRussia. For its part, the U.S. would also like to increase its own exports ofliquefied natural gas to Europe.

The International Energy Agency’s Executive Director FatihBirol seemed convinced that Russia could raise gas supplies to Europe, however,telling the Financial Times on Thursday that the IEA’s analysis suggestedRussia could raise exports by roughly 15% of peak winter supply to thecontinent.

Calling on Russia to prove itself to be a “reliablesupplier,” Birol said the gas exporter could live up to its word if it wantedto.

“If Russia does what it indicated yesterday [Wednesday] andincreases the volumes to Europe, this would have a calming effect on themarket,” he said. “I don’t say they will do it but if they wish so, they havethe capacity to do it.”