George Soros says Russia’s gas storage is almost full — and Europe should hold its nerve

DAVOS, Switzerland — Russian President Vladimir Putin’s bargaining position is “not as strong as he pretends” and Europe has leverage against him, according to billionaire investor George Soros.

In a letter to Italy’s prime minister, Mario Draghi, Soros said Putin was “obviously blackmailing Europe” by threatening to — or actually — withholding gas supplies.

“That’s what he did last season. He put gas in storage rather than supplying gas to Europe. This created a shortage, raised prices and earned him a lot of money, but his bargaining position is not as strong as he pretends,” Soros wrote Monday.

Russian officials were not immediately available for comment when contacted by CNBC on Wednesday.

Russia has recently cut gas supplies to Finland contending the country is not paying for it in rubles. The move came after Helsinki announced its intentions to join NATO — the defense alliance that Putin opposes.

Bulgaria and Poland also stopped receiving Russian gas supplies a couple of weeks ago. In the wake of Russia’s invasion of Ukraine, Moscow announced that “unfriendly” nations would have to pay for Russian gas in rubles — a policy that allows the Kremlin to prop up its own currency.

However, the message from Soros is that European countries have leverage against Putin, too.

The EU, which is made up of 27 countries, receives about 40% of its natural gas supplies from Russia, making it difficult for the bloc to stop buying it overnight.

But, according to Soros, the EU is also a very important market for the Kremlin and Putin needs the gas revenue to support his economy.

“It is estimated that Russian storage capacity will be full by July. Europe is his only market. If he doesn’t supply Europe, he must shut down the wells in Siberia from where the gas comes. Some 12,000 wells are involved. It takes time to shut them down and once they are shut down, they are difficult to reopen because of the age of the equipment,” Soros said in the letter.

He added that Europe needs to undertake “urgent preparations” before using its bargaining power. “Without it the pain of sudden stoppage would be politically very hard to bear,” he said. “Europe should then impose hefty tax on gas imports so that the price to the consumer doesn’t go down.”

Leon Izbicki, an associate at Energy Aspects, agrees that Russia’s gas storage is close to being full.

“Russia went into last winter with record high stocks of around 72.6 billion cubic meters and aims for an even higher underground storage target for winter 2022 of 72.7 billion cubic meters,” Izbicki added via email. “While we do not have visibility on Russian underground storage, it seems plausible that Russia could reach this target this summer already.”

He added that Russia lacks flexibility in its gas storage and does not have the means to divert gas from Europe to, for example, Asia due to a lack of pipeline infrastructure.

Meanwhile, European countries have been scrambling for alternatives to Russian gas since the invasion of Ukraine. The EU and the United States, for instance, signed a deal in March to ensure the region would receive at least 15 billion cubic meters more of liquefied natural gas this year.

This, coupled with the recent cuts in supply to Poland, Bulgaria and Finland — along with international sanctions — means that Russia is inevitably already selling less gas to Europe.

“We expect gas flows to Europe to come in at around 98 billion cubic meters this year compared to 141 billion cubic meters last year,” Izbicki said.