Russians are arguing that even the unconfirmed news about Nord Stream 2 being launched has caused the gas price to drop, so they are agitating for starting the pipe in the fall irregardless of the existing obstacles. The gas prices did indeed flinch because of this rumor, but hydrocarbons prices have been dropping longer and stronger due to a different factor – the persisting fears about the coronavirus. On the bright side, it looks like the prices at gas stations will dip – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
A gas blackmail dressed in market gowns
Gazprom’s propaganda machine is in full swing. Due to an error, the website of the German operator GASCADE, which provides data on gas flows in its gas pipelines, showed that gas was being delivered via the Lubmin 2 point, which is the landfall facility where Nord Stream 2 will enter the shore. GASCADE, owned by Germany’s BASF and Gazprom, operates the leg of the contentious gas pipeline in Germany called EUGAL. The company quickly denied the news that gas started to flow via Nord Stream 2, which obviously could not have happened as the pipe is still in the works. Still, Russians used the situation to argue that the new pipe will lower gas prices, and announced that they were hoping it could be opened in October to deliver 5.6 bcm by the end of 2021.
This is a new addition to the fait accompli policy by which Russia is trying to convince the world that it’s impossible to stop Nord Stream 2. The construction is about to finish and only an unexpected move by the US, or storms at sea could throw a wrench in the works. Deutsche Welle has announced the ceremony marking the end of the construction will be held on the 23rd of August, which only exacerbates the tension as it’s the anniversary of the Molotov–Ribbentrop Pact. However, even this date is not set in stone, due to a few risk factors that may delay the completion until September . This is how the narrative about the inevitability of Nord Stream 2 is being constructed. Yet, the pipe still needs to face the existing US sanctions that target companies that would want to provide technical certification for the project, and the EU gas directive, which needs to be implemented before transmission begins. The Russians want to convince Western Europe that there is no point in waiting for these issues to get solved, as it is more important to launch the pipe as soon as possible to avoid further price hikes. This new gas blackmail is made possible by the fact that Gazprom owns shares in multiple gas storage facilities in Austria, Germany and Holland. BiznesAlert’s Mariusz Marszałkowski wrote about this previously.
The real reasons behind dropping gas prices and more
However, in fact the pipe will actually increase gas prices in Central and Eastern Europe and undermine the development of that market. Whereas, in the long-term the reason behind the drop in gas prices is completely different. The data clearly reveals that the oil and gas prices have been in a steady decline since early August. In the first days of that month the Brent oil barrel cost USD 77 and then dropped to USD 66 in mid-month. Natural gas, whose price on the US market has nothing to do with Nord Stream 2, in early August cost USD 4 per mmbtu, only to go down to USD 3.7 in mid August. This dip is completely independent of Putin’s new pipeline, and even of the OPEC+ deal that is being loosened by oil powerhouses such as Saudi Arabia and Russia, which stopped upping the cap despite the calls made by the US.
The oil and gas prices have been declining since early August after the bad economic news from China and the new restrictions introduced in response to the growing coronavirus infections. The Chinese economy has recovered to a state from before the pandemic, but is facing problems due to the pandemic-related restrictions imposed after the latest outbreaks and extreme weather in some parts of the country. For instance, a major container terminal at the Ningbo port was shut down, because one coronavirus case was detected. This may cause transport costs to Europe and North America to go up. In July industrial production in China grew by 6.4 percent year on year, but the government’s estimates said the figure would be at 7.8 percent, while the increase in June was at 8.3 percent. Last month retail sales grew by 8.5 percent, which is less than the expected 11.5 percent, and the 12.1 percent recorded in June. Goldman Sachs has estimated that due to the economic downturn in the Middle Kingdom, the demand for oil there will drop this year by 2.1 million bpd. This is a huge figure, especially considering the fact that OPEC+ wants to start selling an additional 400 thousand barrels a month, so calculating from August on, the cartel will release roughly 2 million barrels by the end of the year, which is equal to the amount the Chinese will not need. For this reason, the deal on new cuts may be revised, because the coronavirus is already disturbing the markets. The price of a barrel is increasingly more dependant on the demand, that hinges more on the pandemic and less and less on the decisions made by OPEC+.
Will gasoline be cheaper?
The possibility that fuel prices will drop in Poland and elsewhere in the world is the only silver lining in this difficult situation. A new economic downturn and restrictions caused by the pandemic may curb the demand for fuels, and consequently lower the record high prices at gas stations, adding to the increase of the GDP, just like last year. The average price of 95 gasoline is now PLN 5.71, which is already slightly below the latest record. The highest price was recorded in early August – PLN 5.72 per liter, but it is difficult to tell whether the recent drop reflects the general downward trend on the hydrocarbons market, or how long it will last. The impact of the pandemic on the demand across the world should be monitored constantly.