Putin blames market speculation for gas crisis, vows to boost supply

Prices of gas futures dropped by a third after Russian President Vladimir Putin said his country could deliver record amounts to Europe. Deputy Prime Minister Alexander Novak urged for the certification of the Nord Stream 2 pipeline and blamed market speculators for the spike to an all-time high of USD 1,900 per thousand cubic meters.

Gazprom should “fully comply with the contractual obligations” to deliver gas through Ukraine to Europe, President of Russia Vladimir Putin said, claiming the company is an “absolutely reliable partner” that never rejected “relevant requests” from customers to increase supply. He even pointed out his country could deliver record amounts to Europe.

After top Russian officials offered reassurances, gas futures at European exchanges plunged by a third or more from a record USD 1,900 per thousand cubic meters, reaching less than USD 1,100 in some cases. The surge since late August contributed to a rise in electricity prices in Europe to historic highs.

Of note, European Commissioner Kadri Simson said she would propose a gas market reform and added the European Union has sufficient reserves for the winter.

Putin: Switch from long-term contracts to spot markets led to imbalance

Putin said bigger quantities need to be offered through the St. Petersburg Stock Exchange “to bring down speculative demand” and ease the gas crunch. He also accused the previous European Commission of switching from long-term agreements to spot contracts in the market and said it was promoted “mainly by British experts.”

The surge in gas prices since late August contributed to a rise in electricity prices in Europe to historic highs

“Abrupt, rash acts can lead and, judging from the current market situation, are leading to major imbalances,” Putin said.

Deputy Prime Minister Alexander Novak also blamed speculation in the markets for the record spike and said the current major factors wouldn’t have otherwise affected prices in such a way. The former energy minister added the situation doesn’t reflect supply and demand but that the surge could be cooled if Germany gives all clearances to the Nord Stream 2 pipeline, which carries gas from Russia.

Political disputes starving Europe of gas

The project faced opposition from the United States and some European countries and it is yet to be fully activated. The pipeline across the Baltic Sea was recently finished, but Ukraine then said Russia halted deliveries via its territory to Hungary.

Putin backed Novak’s suggestion for Gazprom to boost the volume of gas on its electronic sales platform, but added Russia’s priority is to fill its storage for the winter. The deputy prime minister said it would take ten more days. According to Novak, prices have soared partly because the US has directed its liquefied natural gas (LNG) deliveries to Latin America.

Earlier, Gazprom confirmed its projection of a 12% increase in gas output this year.