No Stream: EU gas markets brace for price surge

No Stream: EU gas markets brace for price surge

by Reuters News Service
224 views 3 mins read

European gas buyers already grappling with record-high prices face further pain when the markets open on Monday after Russia said one of its main supply pipelines to Europe would remain shut indefinitely, sparking fears over energy rationing.

Lower gas flows from Russia ahead of and following its February invasion of Ukraine have already pushed up European prices by nearly 400% over the past year, sending electricity costs soaring.

Europe has accused Russia of weaponising energy supplies in what Moscow has called an โ€œeconomic warโ€ with the West over the fallout from the Ukraine conflict, while Moscow blames Western sanctions and technical issues for supply disruptions.

The Nord Stream 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 running at just 20% of capacity before flows were halted last week for maintenance.

Expectations were high Russiaโ€™s state-controlled energy giant Gazprom would restart flows at 20% after the latest stoppage, leading benchmark Dutch TTF gas prices to fall back around 40% from Aug. 26โ€™s record high to close at just over 200 euros per megawatt hour on Friday.

But after Russia scrapped a Saturday deadline for flows to resume, saying it had discovered a fault during maintenance, prices are likely to surge again, analysts said.

โ€œOn Fridayโ€ฆ the market was already pricing in Nord Stream 1 (NS1) flows coming back,โ€ Energy Aspects gas analyst Leon Izbicki said. โ€œWe expect a significantly stronger open for the TTF on Monday.โ€

Sky-high power costs linked to surging gas prices have already forced some energy-hungry industries, including fertiliser and aluminium makers, to scale back production, and led EU governments to pump billions into schemes to help households.

The impact of the latest cut would depend on Europeโ€™s ability to attract gas from other sources, Jacob Mandel, senior associate for commodities at Aurora Energy Research, said.

โ€œSupply is hard to come by, and it becomes harder and harder to replace every bit of gas that doesnโ€™t come from Russia,โ€ he said.

TOTAL HALT

German Chancellor Olaf Scholz said on Sunday his country had been preparing for a total halt in gas deliveries from Germany. Read full story

Germany, Europeโ€™s largest consumer of gas, is at phase two of a three-stage emergency plan to deal with lower supply. A move to stage three would see some gas rationing to industry.

Following Russiaโ€™s invasion of Ukraine Europe rapidly launched plans to cut its dependence on Russian fuels, switching to alternative suppliers of gas and other fuels and pushing faster deployment of clean energy supplies.

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

โ€œThereโ€™s plenty of scope to replace that (Russian) gas with LNG imports for now, but when the weather turns cold and demand starts to pick up in the winter in Europe and Asia, thereโ€™s only so much LNG out there that Europe can import,โ€ Mandel said.

Klaus Mueller, president of the Federal Network Agency energy regulator, said in August that even if Germanyโ€™s gas stores were 100% full, they would be empty in 2.5 months if Russian gas flows were halted completely.

Europe last week met early a target to fill its gas stocks by 80% by November. EU stocks are currently 81% full, according to Gas Infrastructure Europe data, with Germanyโ€™s stores at 85% full.

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

Russian gas is still currently flowing to Europe through pipelines via Ukraine, but speculation is now mounting over whether that too could be halted.

โ€œWeโ€™re shifting focus to the (gas) โ€ฆ that continues to flow to Europe through Ukraine,โ€ James Huckstepp, EMEA gas analyst at S&P Global Platts, said in a Twitter post. โ€œOnly a matter of timeโ€ฆโ€

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