European Gas Prices Hit All-Time Highs as Russian Flows Slump
European gas prices surged to all-time highs on the 1st October as Russia kept a tight lid on supply, signalling further price pressures on European consumers heading into the winter heating season.
Russian gas supplies via the Yamal-Europe pipeline fell on the 1st October by almost 77% from the 30th September, according to data from grid operator Gascade, as Kremlin-controlled Gazprom booked only a third of its available capacity for October.
The drop comes at a critical juncture for Europeans who are facing surging utility bills amid a fight for supply.
“Gazprom’s decision not to book for October the full capacity available at one of the main pipelines that delivers gas to Germany poses an increased tightening risk to north-western European gas balances and, hence, further upside risk to TTF prices this winter,” Goldman Sachs said in a note.
The November gas price at the Dutch TTF hub, a European benchmark, hit an all-time high of €97.73 eros per megawatt hour (MWh) earlier on the 1st October, up around 400% this year, before easing slightly.
Demand for gas has soared as the post-pandemic recovery meets low inventories with stiff competition for supplies from Asian buyers – China, for example, is seeking more liquefied natural gas cargoes despite record prices as its own winter season starts.
Nonetheless Gazprom has come in for criticism. A group of European Parliament lawmakers has asked the European Commission to investigate the company’s role in the rising prices, saying its behaviour had made them suspect market manipulation and an “effort to pressure” Europe to agree a fast launch of its Nord Stream 2 gas pipeline.
The Kremlin reiterated on the 1st October that Gazprom, whose gas exports outside the former Soviet Union rose 15.3% year on year in the first nine months of 2021, was meeting all its contract obligations in full.
“Gazprom is supplying gas in accordance with customers’ requests under contract obligations,” the company said in separate e-mailed comments on the 1st October.
German utility Uniper, one of Gazprom’s biggest clients, confirmed Russia was fulfilling all its contract obligations to it.
No relief for tight markets
Physical flows via the Yamal-Europe pipeline, which traverses Poland, dropped to 5,313 megawatt hours per hour on Friday morning, the 1st October from 22,705 megawatt hours per hour on Thursday evening, the 30th September via the Mallnow entry point, according to the Gascade data.
Following the drop, Goldman Sachs lowered its estimated gas storage levels in north-west Europe to 12 billion cubic metres or 23% of capacity by end-March from a previously estimated 32%.
As storages are low, Gazprom needs to either book additional transit volume or buy gas from the market as flexibility from storage withdrawals is not on the table, said Xun Peng, a gas analyst with Refinitiv.
Gazprom had planned to send 5.6 bcm of gas to Europe via its newly-built Nord Stream 2 gas pipeline which is pending operational clearance from German regulators.
Uniper, also Gazprom’s financial partner in Nord Stream 2, does not, however, expect an operating licence to be granted quickly, its chief executive said on the 1st October.
“In the absence of large Nord Stream 2 flows, this scenario of extended restricted Yamal flows could create a squeeze in physical markets this winter,” Goldman Sachs said in its note.
Source: Pipeline & Gas Journal