Just as the European gas market was calming down after the winter and the Russian ruble drama was over, Moscow has this week limited natural gas flows to its two largest customers in Europe, Germany. and Italy. Combined with the prolonged shutdown of a U.S. LNG export facility that met 2.5% of Europe’s gas demand in May, the cut in Russian flows caused European prices to rise. natural gas rose as the threat to security of supply returned. Natural gas prices in Europe rose by as much as 50% in just one week, to a two-month high on Wednesday. On Wednesday alone, the price of one-off European benchmark gas at the Dutch TTF center rose 24% to 120 euros, or $ 125, per MWh, and gas for the winter of 2022/2023 soared to 119 euros / MWh.
The reduction in Russian flows and the disruption of the Freeport LNG export terminal, which is not expected to return to full operation until the end of the year, highlighted Europe’s vulnerable position in the time to purchase gas and fill your gas storage sites on time to avoid a rationing winter. in a few months. Russia’s declining gas supply has also sparked fears that Russia will increasingly use its gas – and Europe’s dependence on it – as a geopolitical and energy weapon against the West.
Europe’s largest economy, Germany’s largest buyer of Russian gas, warned on Wednesday that limits on flows through the Nord Stream pipeline were Putin’s strategy to shake up the market, sow uncertainty and raise gas prices. .
Analysts say Europe should now be prepared for the growing likelihood of “zero Russian gas” despite many European customers, including Germany and Italy, leaning on Putin’s demand to open ruble accounts. to negotiate with Gazprom.
Russia reduces Nord Stream gas flows to Germany
Germany had just started filling its natural gas storage, as there were all the favorable factors for faster inventory creation: European prices fell for most of April and the whole of May in mid-May. of strong LNG imports, while many European companies opened accounts in Gazprombank. , as requested by Vladimir Putin, for payments of euros / dollars in rubles for Russian gas.
The relative calm in the European gas market was very premature and short-lived. On Tuesday, Gazprom said it would limit gas supply through the Nord Stream pipeline to Germany by 40 percent compared to projected flows due to a delay in equipment repairs. On Wednesday, Gazprom said the cuts would deepen up to 60 percent of daily production because Siemens delayed the return of a repaired gas turbine.
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Siemens Energy, for its part, said that “due to the sanctions imposed by Canada, it is currently impossible for Siemens Energy to deliver revised gas turbines to the customer. In this context, we have informed the Canadian and German governments and we are working on a viable solution. ”
However, German Economy Minister Robert Habeck said the limited flows appeared to be a political decision.
“The Russian side’s argument is simply a pretext. “It’s obviously a strategy to unsettle and raise prices,” Habeck was quoted as saying by Reuters on Wednesday.
Gas flows in Italy are also reduced
Although Gazprom had a well-prepared reason for the cut in German gas supply, it did not give any for the 15% reduction in its gas deliveries to Italy.
The big Italian Eni, which incidentally opened accounts with Gazprombank, confirmed on Wednesday that Gazprom had “communicated a limited reduction in gas supply for today, amounting to approximately 15%”.
Italy and Germany are Russia’s two main customers, and Russian gas accounted for 40% of gas consumption in these countries before the war in Ukraine. Both Germany and Italy have been actively looking for an alternative supply, including the start of construction of the first LNG import terminals in the case of Germany and the obtaining of agreements for more supply with gas producers in the north. of Africa, the Middle East and Africa in the case of Italy.
The threat of supply to Europe has returned this week, just as the EU is looking to supply gas and possibly avoid gas rationing for industries next winter.
EU member states must now reach a minimum level of gas storage of 80% before 1 November to protect themselves from possible supply disruptions. By 2023, the target will rise to 90% full gas storage on November 1st. As of June 15, gas storage in the EU was 52% full, with Germany at 56% and Italy at 54%, according to Gas data. Infrastructures Europe.
LNG disruption adds to supply concerns
Europe still has a long way to go to rebuild gas inventories to the required levels, but the pace could slow in the coming weeks amid rising prices, Russia’s limited supply to the two largest economies and the disruption of Freeport LNG.
Freeport shipped 30 million cubic meters of gas a day to Europe in May, meaning it met 2.5 percent of European demand last month, Rystad Energy analysts told The Wall Street Journal.
There is also the next annual maintenance on Nord Stream in July, which will stop supply through the pipeline in Germany for about two weeks.
All these factors could lead to a slowdown in the construction of gas inventories in Europe. This means that Gazprom does not notify another customer of additional supply reductions. Then the filling of storage could stop, further straining relations between Russia and Europe.
“The industry needs to prepare for zero Russian gas,” Thierry Bros, a former energy analyst and professor at the Paris Institute of Political Studies, told Bloomberg, commenting on Gazprom’s latest supply cuts.
“EU companies that agreed to change the contract to continue receiving gas should now understand that political dictates can come from the Kremlin at any time.”
By Tsvetana Paraskova for Oilprice.com
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