Russia’s income from gas exports to the EU has fallen eightfold

“Russia has lost its gas hold on Europe,” a European energy policy official told the Financial Times, and has every reason to believe so. It’s not just that the price of gas in Europe has fallen more than 90% since August 2022, when it peaked as a result of Vladimir Putin’s orchestrated blockade of the European Union by cutting off supplies from Gazprom. The EU, which survived the energy crisis, broke away from the Russian gas “needle”.

According to an internal document of the European Commission (EC), which was verified by the FT, from the peaceful March 2021 to March 2023, Russian gas supplies to Europe fell by 74%. On the other hand, Gazprom (and therefore the budget of Russia, whose leadership urgently needs money to continue the war it unleashed) has lost tens of billions of dollars.

An increase in purchases from other suppliers, primarily liquefied natural gas from the United States, as well as cost-saving measures helped to cope with the EU’s energy crisis. In August last year, the EC introduced a voluntary reduction of gas consumption by 15% until March 2023 compared to the average level from the last five years. At the end of the heating season, its operation was extended for another year.

According to the EC, this year the EU will save 60 billion cubic meters. gas. This is “more than the volume of gas, both pipeline and LNG, that we still expect to import from Russia in 2023.” – we read in the EC document. And 8 billion cubic meters more than the block saved in the previous round of consumption reduction.

High energy prices last year forced a number of European companies to reduce production or even shut down production capacity. Weak demand for industrial gas is the main reason gas, electricity and coal prices are down 90% from their peak levels, said James Huckstepp, commodities strategist at BNP Paribas. A mild winter and other austerity measures, including by consumers, also contributed to this.

The decline in gas demand was not the result of “luck”, but of anti-crisis measures taken last year, including the 15% reduction rule, said EU energy commissioner Kadri Simson on Wednesday at a meeting with other EC ministers. Energy efficiency measures and accelerated renewable energy capacity expansion have also helped.

If the EU manages to reduce consumption by 60 billion cubic meters this year, there will be oversupply and “prices will fall very, very much,” said Henning Gloishtein, director of energy, climate and resources at Eurasia Group.

The price of the next Dutch TTF gas future contract fell to €25/MWh ($280 per 1,000 cubic meters) on Thursday, while at the end of August 2022 it exceeded €340 ($3,600 per 1,000 cubic meters). The price has almost returned to the level of 20 euros, which was not exceeded for a decade before starting to increase in the fall of 2021.

However, the market expects the price to rise to EUR 44-48/MWh by mid-winter. Some industrial companies, such as France’s Aluminum Dunkerque and Norway’s Yara International, are ramping up production again, using much cheaper energy resources. But even if the gas price goes up a bit, it won’t help Gazprom.

According to the forecast of the State Council Commission, this year Gazprom will sell abroad only 50 billion cubic meters of gas – the minimum amount since the late 1970s.