FSUOGM: Gas expert hits back at IEA claims about Russia

A leading expert on the European gas market has criticised the International Energy Agency (IEA) for blaming Russia for causing the continent’s energy crisis, instead attributing high energy bills to the EU’s own policies.

Jonathan Stern, a research fellow at the Oxford Institute for Energy Studies who served as EU speaker for the EU-Russia Gas Advisory Council between 2011 and 2015, noted that Russia has long warned its European gas customers against abandoning long-term contracts and shifting away from oil-indexed to gas market prices.

While at the advisory council, his Russian counterparts said that these were “extremely bad ideas.”

“We disregarded these warnings and pressed on with the creation of market hubs and moved long-term contracts from oil-linked to spot prices,” he said in a letter published by the Financial Times. “For 10 years we were right, aside from a very few months. Hub prices were substantially below those related to oil.”

Data published by the IEA supports this. The Paris-based agency estimates that the EU saved some $70bn in gas import bills over the last decade by moving from oil indexation and towards hub pricing. But in October, the IEA reported that EU member states already stood to pay $30bn more that year because of this market liberalisation.

“As recently as May 2020, oil-linked prices were nearly six times those at hubs which were at historical lows. The continent was awash with gas,” Stern said. “Long-term contracts requiring gas to be taken or paid for were the last thing anybody wanted, and Gazprom was losing money on exports.”

But from the end of 2020 the situation reversed, he explained, though Gazprom continued to offer European companies the option of signing long-term contracts if they needed extra supply assurances.

“Very few have done so, and national and corporate greenhouse gas [GHG] reduction targets and policies will make any such future commitments increasingly untenable,” he said. “Again, this is a European choice and not one imposed or created by Russia. Complaints about Gazprom’s refusal to make additional supplies available, and maintain high levels of gas in European storages, fail to recognise that the current market model contains no obligation to do so.”

This said, Stern said he was not ruling out “geopolitical [motives] related to Nord Stream 2 and the general state of relations with Europe.” Gazprom has been accused of withholding some gas supplies to push European regulators to approve Nord Stream 2’s launch and drive other political concessions from the bloc.

“The point is that for 10 years the gas market model benefited European consumers,” Stern said. “For the past year the opposite has been the case and Gazprom (and all other suppliers) has reaped the benefits.”

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