Publications / Policy brief
Is Russia to blame for high European gas prices?Reasons behind the high gas prices and the way ahead in 2022 - policy briefPublished: 19 of October, 2021

Since March 2021 the European wholesale natural gas price has rose steadily above the pre-COVID 2019 levels reaching hights never seen before, leading to gas to coal switch in the power production and demand reduction in industrial production. Analysing the underlying reasons, we found that the current EU gas price crisis is rooted in strong Asian demand related to the economic recovery from the 2020 COVID crisis, to falling domestic production in Europe which increases the exposure to global price shocks and is something that will persist in the future. The “perfect storm” circumstances allowed for Russia, the main import supplier to Europe to exercise substantial market power to manipulate EU gas prices by withholding additional supplies beyond the quantity of the long-term contracts. Our modelling results suggest that abandoning the Ukrainian route creates artificial bottlenecks in the pipeline system that might lead to decoupling of gas prices in Europe in 2022. Additional new volumes of any source would significantly dampen the prices.