Streetwise Professor

October 8, 2021

That Putin, He’s a Gas*: Or, Gazputin Returns!

Filed under: Commodities,Energy,Politics,Russia — cpirrong @ 5:59 pm

Churchill called Russia “a riddle, wrapped in a mystery, inside an enigma.” Those following the natural gas market, particularly in Europe, during the Great Spike of 2021 have no doubt agreed wholeheartedly. What is Russia’s (specifically Gazprom’s) game? Why haven’t they increased sales/output to profit from the spike? Because they can’t due to output constraints? Or because China is outbidding Europe for supplies? Or because they need to build domestic stocks?

Or because they are deliberately withholding output for some strategic purpose, a la 2006?

Yesterday Putin unravelled the riddle/mystery/enigma quite a bit: it’s the latter.

Specifically, Putin said Russia would be more than happy to send Europe more gas. But, only via Nordstream 2, not via currently operating pipelines, through Ukraine in particular. Too expensive to send via Ukraine, you see.

Nordstream 2 was just completed, at the insistence primarily of chief Putin-Versteher, Angela Merkel (whose energy policies have been boneheaded from start to finish), and against the determined efforts of Trump and Congressional Republicans. Biden caved recently on the issue and, waived Trump-imposed sanctions, thereby allowing the completion of the pipeline.

But there are still major disagreements between the European Union and Gazprom regarding the pipeline so gas is not flowing yet. Specifically, the EU has ruled–and EU courts have agreed–that Gazprom must “unbundle.” That is, there must be a separation between control of pipeline capacity and ownership of the gas. Meaning that Gazprom must auction off its capacity on NS2:

The Nord Stream 2 gas pipeline is not exempt from European Union rules that require the owners of pipelines to be different from the suppliers of the gas that flows in them to ensure fair competition, a German court ruled on Wednesday.

The Duesseldorf Higher Regional Court rejected a challenge brought last year by the operators of the Gazprom-backed (GAZP.MM) project to carry gas from Russia to Germany under the Baltic Sea. They had argued the rules were discriminatory.


“Russia’s Gazprom will be forced to auction pipeline capacity, which could delay deliveries further,” said Refinitiv gas analyst Xun Peng.

EU rules require the companies that produce, transport and distribute gas within the bloc to be separate, or “unbundled”. They aim to ensure fair competition in the market and to prevent companies from possibly obstructing competitors’ access to infrastructure.

This means that the company transporting the gas must auction its capacity to third parties.

Gazputin no likey!

And now he has a desperate gas short, winter-dreading Europe by the balls.

Did you really think he would pass on an opportunity to squeeze?

So he’s squeezing. Hard. The threat is clear: if you want more gas, cave to me on unbundling.

“Nice little continent you have here. Shame if something happened to it. Like, you know, freeze.”

In other words, Putin is not the Riddler, or a mystery, or an enigma after all. He is just playing to type. Where type includes adding sanctimonious snark to sugarcoat his threat.

Putin hasn’t changed a bit. The circumstances have changed, and Putin, in his oft-proven opportunistic fashion, is playing the scorpion in Aesop’s fable the Frog and the Scorpion. “I couldn’t help it. It’s in my nature.” Gazputin is back, baby.

For precisely this reason the Europeans–and Merkel in particular–have no one to blame but themselves. They are the ones who put the scorpion on their backs. One would think this sting would be a lesson. But given how many times they’ve been stung in the past, and continued in their course, that will almost certainly not happen. So I for one am shedding no tears.

*The title is an homage to Chicago Bears great Gale Sayers, and his commercials for Cheker Gas stations, in which the closing line was always: “That Cheker, it’s a gas.”

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  1. I wondered what was going on over there.

    You would have thought that someone in Europe/Germany would have sought a legal opinion early on, given the EU courts’ approach to competition and market power.

    But these are the people who closed their nuclear power stations and coal-fired power stations before their replacement was bedded down. Thinking ahead loses out to virtue-signalling.

    ‘Stupid is supposed to hurt.’

    Comment by Ex-Global Super-Regulator on Lunch Break — October 8, 2021 @ 8:08 pm

  2. Yet another instance of simultaneously inevitable and unforeseeable. This is becoming a trend.

    Next stop unforeseeable economic decline due to “struggle against climate change”, much like the “struggle against capitalist exploitation” before.

    Comment by Ivan — October 9, 2021 @ 7:38 am

  3. The EU shows the same flair for decision-making and negotiation that it did in l’affaire des vaccins.

    How long would it take to extend that pipeline through the Sounds, out into the North Sea, and onto the English coast? Come on, Boris, at least tease The Frogs with the idea!

    Comment by dearieme — October 9, 2021 @ 9:01 am

  4. @ prof
    This is indeed no riddle let alona enigma, not sure if it is due to type either. The strategy seems perfectly rational given ehat must be his long-term objective: continuing to supply gas to Europe and avoid paying hostile Poland and Ukraine for Transit….

    What I do not understand, and maybe you can elaborate, is how unbundling the pipeline leads to more competition in this case. It makes sense where there are multiple suppliers that could use the pipeline, but this doesn‘t seem to be the case here, if I am not mistaken.
    Neither does the fact that the existing pipelines through Ukraine and Poland are operated by the latter, free Europe from the clutches of Gazprom monopoly, as the current situation shows…

    From the viewpoint of the Kremlin this unbundling merely allows new players to meddle with the flow of gas (and hence FX) by linking it to political issues…

    Comment by Viennacapitalist — October 10, 2021 @ 6:16 am

  5. @SWP…If you were in Vova’s position, what would you do?

    Comment by Richard Whitney — October 10, 2021 @ 8:25 am

  6. If true, this is a typical example of Vlad’s stupidity. I’ve no idea why some in the west view him as a strategic genius – everything he does is dumb.

    This “move” demonstrates complete ignorance on how western democracies work – particularly the role of the law and judiciary. In places like Russia, China, Saudi, etc. the law and judiciary is a sham as the executive holds all the power. This isn’t how western countries work – where the law is not subservient to the executive. And he picked a poor target even at that – changing EU law is effectively impossible without new treaties involving all members and there is ZERO appetite for any new EU treaty at the moment.

    Erdogen made similar perplexing move a few years ago with respect to the Danish prime minister – demanding that he do something about a court case involving the Mohammed cartoons. As if a president or prime minister could just “get involved” in a court case and direct its outcome.

    What’s doubly stupid is that for the nearly the last decade, the EU strategic view on energy has included a push for members to build more LNG ship terminal capacity. Currently only about 10-15% of the gas imported into Europe is in this form. Qatar is ramping up production in response to the crisis and I can see lots of new terminals being built in Europe very quickly. In the medium to long term – this stuff all harms Russia’s strategic’s interest.

    Comment by derriz — October 10, 2021 @ 2:32 pm

  7. @derriz “In the medium to long term – this stuff all harms Russia’s strategic’s interest”

    In the medium to long term, the kleptocratic regime harms Russia’s strategic interest immensely, so this is obviously not a concern for the regime.

    The source of prosperity for the Russian regime is not hydrocarbons, it is slavery.

    The specific commodity extracted via slavery is hydrocarbons currently, but it used to be wheat in the pre-Bolshevik era, and it may be something else entirely tomorrow. Does not matter as long as slavery is preserved.

    The war against Ukraine is the best shot Putin has at preserving and even greatly increasing his slave pool. Getting NS2 operational is an important part of the war plan, so Putin is ready to pay whatever need be for it. He is not pressuring the executive branch to pressure the legislature, he is pressuring all of Europe. And it has been working fine so far.

    Comment by Ivan — October 11, 2021 @ 12:10 pm


    Comment by Richard Whitney — October 13, 2021 @ 11:55 am

  9. Not sure what the logic here is – Nordstream 2 finished or not: Russia can withhold natural gas delivery in both cases. There is Nordstream 1 afterall (who is owning the pipeline on Nordstream 1; who is owning the pipelines for Russian oil via Ukraine and/or Poland? Most likely Russia (directly or indirectly). Russia can withhold additional gas beyond what it is contractually required to deliver with or without Nordstream 2. – May be Russia doesn’t like sanctions imposed by the US and Europe and wants those to be lifted? There can be a myriad of reasons – the extra pipeline capacity makes no difference. Merkel agreed with the Biden administration to compensate Ukraine for losing pipeline revenue – and that would apply here, if Putin was not joking.
    When there is a shortage (for whatever reasons) prices go up. The same happens when the US prohibits Iran to sell oil via sanctions. The oil price goes up.
    In the long-run Russia is hurting its own natural gas business and revenue, but what Russia is doing is not illegal. NGL is more expensive, but will become more attractive, once natural gas prices stay high for long enough, and more capacity will be built?
    The reason for US pressure to prevent Nordstream 2 – is to sell more NLG from the US. Putin might make that possible by delivering only what Russia is obliged to deliver contractually – similar to tactics by OPEC many decades ago.
    The EU may have instituted these new laws in 2019 on requiring separation of producer and pipeline operator, but it grandfathered then existing pipelines ? But even if a US company ran the pipeline, what would stop Russia from reducing Russian delivery? Nothing!

    Comment by Rudi Schadt — October 21, 2021 @ 1:47 pm

  10. he face you wear when you opponents are wo0ke fools or, for the principal one, senile and nasty,

    Comment by Dotosy1 — November 3, 2021 @ 4:51 pm

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