No Stream: EU gas markets brace for price spike after latest gas cut in Russia


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LONDON — European gas buyers already struggling with record prices face further difficulties when markets reopen on Monday after Russia said one of its main supply pipelines to Europe would remain closed indefinitely, raising fears about energy rationing.

Falling gas flows from Russia before and after its invasion of Ukraine in February has already driven European prices up nearly 400% in the past year, sending gas costs skyrocketing. electricity.

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Europe has accused Russia of weaponizing energy supplies in what Moscow has called an “economic war” with the West over fallout from the Ukraine conflict, while Moscow blames Western sanctions and technical problems for power disruptions. ‘supply.

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The Nord Stream gas pipeline, which runs under the Baltic Sea to Germany, historically supplied around a third of the gas exported from Russia to Europe, but was already operating at just 20% capacity before flows were halted last week last for maintenance.

Expectations were high. State-controlled Russian energy giant Gazprom would restart flows at 20% after the latest shutdown, causing Dutch TTF gas benchmark prices to fall around 40% from the August 26 record. to close at just over 200 euros per megawatt hour. Friday.

But after Russia scrapped the deadline for resuming flows on Saturday, saying it had discovered a fault during maintenance, prices are set to rise again, analysts said.

“On Friday … the market was already pricing in the return of Nord Stream 1 (NS1) flows,” said Leon Izbicki, gas analyst at Energy Aspects. “We expect a significantly stronger opening for the TTF on Monday.”

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Skyrocketing electricity costs linked to soaring gas prices have already forced some energy-intensive industries, including fertilizer and aluminum makers, to cut production, and led EU governments to inject billions in household assistance programs.

The impact of the latest cut will depend on Europe’s ability to attract gas from other sources, said Jacob Mandel, senior commodity partner at Aurora Energy Research.

“Supply is hard to come by, and it’s getting harder and harder to replace every bit of gas that doesn’t come from Russia,” he said.

TOTAL STOP

German Chancellor Olaf Scholz said on Sunday that his country was preparing for a complete shutdown of gas deliveries from Germany.

Germany, Europe’s biggest gas consumer, is in phase two of a three-step contingency plan to deal with falling supply. A move to the third stage would result in gas rationing for industry.

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Following Russia’s invasion of Ukraine, Europe quickly launched plans to reduce its dependence on Russian fuels, switching to alternative suppliers of gas and other fuels and accelerating the deployment of gas supplies. clean energy.

Germany has started developing liquefied natural gas (LNG) terminals to enable it to receive gas from global suppliers and move away from Russian gas imports.

“There are a lot of possibilities to replace this (Russian) gas with LNG imports at the moment, but when the weather gets colder and demand starts to pick up in winter in Europe and Asia, there is no only a limited amount of LNG that Europe can import,” Mandel said.

Klaus Mueller, chairman of the Federal Grid Agency energy regulator, said in August that even if German gas reserves were 100% full, they would be empty in 2.5 months if Russian gas flows were completely interrupted.

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Last week, Europe hit an early target of filling its gas stocks 80% by November. EU stocks are currently 81% full, according to data from Gas Infrastructure Europe, with German stores 85% full.

Izbicki said prices should reach an average of 400 euros per MWh between September 2022 and the end of October 2023 to encourage enough sellers to send gas to storage for the EU to meet its targets for next year before winter. 2023.

Russian gas is still flowing to Europe through pipelines via Ukraine, but speculation is mounting as to whether that too could be stopped.

“We are focused on the (gas)…which continues to flow into Europe via Ukraine,” James Huckstepp, EMEA gas analyst at S&P Global Platts, said in a post on Twitter. “It’s just a matter of time…”

(Reporting by Susanna Twidale; Editing by Jan Harvey)

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