Russia's state-controlled gas giant Gazprom strongly criticised European Union countries over gas-contracting policies this week, echoing similar statements made by Russian President Vladimir Putin during his traditional end-of-year press conference.

“All accusations against Russia and Gazprom [in fostering the gas crunch in Europe] are untrue. To put it simply, these are all lies”, the company’s spokesperson Sergey Kupriyanov told Russian state agency Tass.

“European countries have themselves created the problems [in the availability of gas supplies]”.

Putin has lashed out against Europe and its politicians more than once and reiterated in his end-of-year press conference that the monopoly actually grew its gas exports to the continent in 2021.

In its previous disagreements with European authorities, Gazprom had usually tried to resolve disagreementsthrough negotiation, and avoided the tones of conflict.

Gas exports in decline

Based on Gazprom’s disclosures of its daily gas supplies to the European Union via Ukraine's transmission network, by the subsea Nord Stream pipeline to Germany and via onshore Yamal Pipeline to Poland and Germany, the company reported total exports at about 148.4 billion cubic metres for 2021.

These exports are lower than the annual shipments of 160 Bcm and 192 Bcm reported in 2019 and 2020 respectively via these pipeline routes.

Gazprom said in a statement on 2 January that its total exports outside Russia grew by 3% to over 185 Bcm in 2021, suggesting some 36.7 Bcm in total were shipped through the Sila Sibiri pipeline to China and via the Blue Stream and TurkStream pipelines to Turkey and Eastern Europe, against 19.3 Bcm via these routes in 2020.

Defying business logic

Industry analysts in Moscow have noted that Gazprom had been forecasting that European gas demand would be about 30 Bcm higher in 2021, compared with 2020.

According to Mikhail Krutikhin, a partner in Moscow-based consultancy RusEnergy, Gazprom opted out of supplying more gas to the continent in a year when spot prices hit record highs.

By doing that, it has defied the orthodox business sense of catching favourable market opportunity and generating more revenues, he said.

Deliveries via Ukraine, expected to take the largest hit in 2021, fell to 41.7 Bcm, against almost 56 Bcm in 2020 and more than 92 Bcm in 2019.

Throughput from the Yamal Pipeline, running from Russia across Belarus and into Poland, declined to 31.4 Bcm, against 35 Bcm in 2020 and 38 Bcm in 2019.

Flows to Germany

In contrast, the Gazprom-led Nord Stream consortium set an annual record of shipments on what is described by Gazprom as its direct supply route to the European Union, with a total of 75.3 Bcm in 2021, against 69 Bcm in 2020 and 61 Bcm in 2019.

Some of that gas, delivered via Nord Stream, started to flow from Germany to Poland earlier in December, according to German network operator Gascade.

Some western politicians and industry experts have accused Russia of holding back gas deliveries to Europe as the continent's biggest supplier seeks certification for the new Nord Stream 2 pipeline, with tensions over Ukraine in the background.

Krutikhin said Gazprom had under-used its own gas storage facilities on the continent in recent months, with the situation most evident in Germany where the monopoly controls about 20% of total storage capacity.

Instead, he said, Gazprom diverted most of its incremental gas production this year to bolster gas reserves in underground storage in Russia to new highs.

More volatility forecast

With the stand-off between Gazprom and Europe showing no sign of easing, some analysts predict even more short-term volatility in energy prices on the continent.

Over the longer term, electricity demand is expected to increase steadily in Europe at an annualised rate of about 2% until 2035, international consultancy McKinsey said in a recent report.

With capacity from coal and nuclear sources falling, natural gas is expected to remain a critical source of dispatchable power, especially in periods with prolonged low renewables output, McKinsey analysts wrote.

European appetite for liquefied natural gas may be easing the supposed supply crunch, however.

Prices for spot gas deliveries in February 2022 dropped by over half to about $920 per thousand cubic metres (€68 per megawatt hour) at the TTF Hub in the Netherlands in the last week of 2021 — down from record highs — following reports of several US LNG cargoes being diverted to Europe from Asia over Christmas.