Prices explode in the gas battle

The art of war

By Manlio Dinucci (il manifesto, Italy)

The gas price explosion hits Europe at the critical moment of economic recovery after the disastrous effects of the 2020 lockdowns. The explanation, claiming it is due to the growth in demand and decline in supply, hides a much more complex scenario, where financial, political and strategic factors play a primary role.

The United States accused Russia of using gas as a geopolitical weapon, reducing supplies to force European governments to enter into long-term contracts with Gazprom, as Germany did with the North Stream pipeline. Washington pressed on the European Union to free [itself] from "energy dependence" on Russia [rather than] making itself a "hostage" to Moscow.

Basically, as a result of this pressure long-term contracts with Gazprom for Russian gas import have dropped in the EU, while purchasing on the spot (or cash) markets have increased, where gas lots are purchased and paid for in cash throughout the day. The difference is substantial: while you buy gas with a  long-term contract at a low price, which is kept constant over the years, in the spot markets you buy gas at volatile prices, generally much higher, and determined by financial speculations in the Commodities Exchange.

Huge quantities of mineral and agricultural raw materials are purchased with future contracts, which provide for delivery on a set date and at the price agreed upon at the time of signing. The strategy of powerful financial groups, that speculate on these contracts, is to raise the prices of raw materials (including water) to resell futures at a higher price.

To get an idea of the speculative transaction volume of the Commodities Exchange, just think that only the US Chicago Mercantile Exchange with offices in Chicago and New York carries out 3 billion contracts a year for one million-billion-dollar amount (over ten times the value of world GDP, or the real value produced in a year in the world). In 2020, while the world economy was largely paralyzed, the number of futures and similar contracts reached a record level of 46 billion, 35% more than in 2019, causing a rise in commodity prices.

At the same time, the US is pressing the EU to replace  Russian gas with US gas. In 2018, in the joint declaration between President Trump and European Commission President Juncker, the European Union pledged to "import more liquefied natural gas (LNG) from the United States to diversify its energy supply". The gas that arrives in the EU is extracted in the US from oil shale with a fracturing technique that causes very serious environmental damage; gas is then liquefied by cooling it to 161 ° C and transported by gas carriers to around 30 terminals in Europe, where it is gasified again. US gas, despite enjoying State benefits, remains much more expensive than Russian gas and, in order to enter the market, it needs gas general price to remain at high levels.

Add to all this the "gas pipeline war", a war that Italy paid dearly when in 2014 the Obama Administration, in agreement with the European Commission, blocked South Stream, the gas pipeline at an advanced stage of construction which would have brought low-cost Russian gas directly to Italy via the Black Sea under the agreement between Italian Eni and Gazprom. Russia has circumvented the obstacle with the Turk Stream which across the Black Sea carries Russian gas to the European border of Turkey, continuing to supply Serbia and Croatia in the Balkans. On  September 29 in Budapest, Gazprom and the MVM Energy Company signed two long-term contracts for the supply of low-cost Russian gas to Hungary for 15 years. A defeat for Washington, weighed down by the fact that Hungary and Croatia are part of NATO.

Washington will certainly respond not only economically, but politically and strategically. We pay the bill with the increase of gas invoices, and the cost of living in general.