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How a spike in gas prices is giving Putin influence over Europe's energy supply

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As parts of the world come out of the pandemic, increased energy demand has natural gas prices soaring, especially in Europe. Since Russia is a huge exporter of natural gas, it's giving President Vladimir Putin outsized influence over Europe's energy supply. NPR's Eleanor Beardsley reports.

ELEANOR BEARDSLEY, BYLINE: The price of natural gas in Europe has soared sixfold since the beginning of the year, leaving many governments worried about their most vulnerable.

(SOUNDBITE OF ARCHIVED RECORDING)

JEAN CASTEX: (Non-English language spoken).

BEARDSLEY: We're going to block these prices for households, said French Prime Minister Jean Castex. Georg Zachmann, energy specialist with the Brussels-based Bruegel Institute, says there are a few reasons Europe is being hit so hard by the global gas crisis.

GEORG ZACHMANN: One reason is that Europe essentially has reduced its own gas production over the last decades. The resources ran out, the U.K. left and the Netherlands reduced its production, which meant we are more depending on imports.

BEARDSLEY: Zachmann says Europe has built plenty of plants to facilitate the import of liquefied natural gas from the U.S. and elsewhere, but high global demand for LNG has meant that Europe isn't getting those imports, so it's become more dependent on natural gas piped in from Russia. But for the time being, Russia isn't sending any extra gas to Europe.

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VLADIMIR PUTIN: (Non-English language spoken).

BEARDSLEY: Russian President Vladimir Putin says state-held Gazprom is fulfilling all of its contracts to Europe. He says the crisis is the EU's fault because it has privileged short-term contracts over long-term, based on what he called erroneous policies. Putin's referring to the Green Deal, the EU's plan to be carbon neutral by 2050. EU Commission head Ursula von der Leyen unveiled it in July.

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URSULA VON DER LEYEN: The European Green Deal, one of the most ambitious policy packages the European Union has ever seen. It is a complete transformation of our economy. Today, we showed the whole world that Europe was ready to lead the way.

BEARDSLEY: Paradoxically, coal-produced electricity is up 43% in Europe as coal plants fire back up, especially in Germany and Poland. Electricity from coal is now cheaper than power from gas, but it releases twice the carbon dioxide into the atmosphere per megawatt hour. Part of the current gas price rise is normal commodity behavior coming out of a period of low demand to high, says energy specialist Thierry Bros. But he says the EU's green policies have made things worse and sent the wrong signals to the market.

THIERRY BROS: So in short, it is a commodity cycle, boom and bust exacerbated by the fact that in Europe, we wanted to go through this Green Deal, and so therefore we've pushed too fast oil and gas out of the window.

BEARDSLEY: European gas futures jumped more than 40% in one hour last week on fears of winter shortages. Putin partly calmed the markets by saying Russia might be able to help. That is if the EU is willing to fast-track completion of its controversial Nord Stream 2 pipeline. Zachmann says Russia could also be using its current market power to lock Europe into long-term contracts.

ZACHMANN: They're saying, OK, we could deliver more, but we only want to deliver more if you could agree to sign for 10, 15 years of gas supplies.

BEARDSLEY: Which would go against the EU's plan to decarbonize and gain energy independence from Russia, says Zachmann. But while some are predicting dire shortages this winter, Zachmann believes the market is working as it should. High prices are forcing industry to reduce consumption, he says, so that by the end of this winter, there will still be enough gas for all the European grandmas to heat their homes. Eleanor Beardsley, NPR News, Paris.

(SOUNDBITE OF SUPERPITCHER SONG, "SHADOWS") Transcript provided by NPR, Copyright NPR.

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