ALL OF A SUDDEN RUSSIA IS PUMPING A LOT “LESS NATURAL GAS” TO EUROPE – IT REMAIN UNCLEAR WHY
European piped natural gas supply from Russia which in recent weeks has witnessed slow delivery, hence, a question over the potential causes behind the subject and its implications for global gas markets remain a concern, owing to the fact that recent sudden drop points at a number of factors, raising question over why Russia is at the moment pumping a lot less natural gas to Europe that has been observed in recent weeks, according to analysis from a commodity intelligence service ICIS.
Meanwhile, this comes shortly after German Chancellor ‘Angela Merkel’ sought to ease long-running concerns about the nearly completed Nord Stream 2 gas pipeline while noting that further sanctions may be imposed, should Moscow uses gas “as a weapon”!
Yet, a project the West views as “controversial” is designed to deliver Russian gas directly to Germany via the Baltic Sea, why bypassing Ukraine and Poland. However, critics have decided to come in from a different angle as they argued that the pipeline is not compatible with European climate goals while increasing the region’s dependent on Russian energy exports. Although, what makes the project an issue of obvious concern is the fact that it’s long been anticipated that it will most likely strengthen Vladimir Putin’s economic and political influence over the region.
Going forward, a number of analysts have suggested Gazprom, Russia’s state-own gas giant could be limiting its delivery of discretionary natural gas supply to Europe in a bid to back its case aimed at starting flows via Nord Stream 2.
According to ‘Tom Marzec-Manser’ lead European gas analyst at ICIS, said: “That’s because Gazprom is readying itself for starting Nord Stream 2 and it is hoping to exert an element of leverage in terms of trying to make sure that when all the regulatory t’s get crossed and I’s get dotted, that that process is as swift as possible”. In addition to that he also added:
“If there is less gas around than normal and the price is high then it may streamline that process”.
In an attempt to reach out to Gazprom, possibly over less natural gas delivery observed in recent weeks, Gazprom referred to a statement the company published on its Telegram account on August 16, in which the company had described August as “another ‘winter’ month on the gas market”, based on translation. Adding that;
“The practice of the last few years both in Russia and in Europe suggests that the winter period has also shifted to the spring month of March. Therefore, now, in the summer, the priority is to pump gas into underground storage facilities”. Noting that “this is also well understood by our European colleagues”.
What’s actually going on?
The traditional gas flows known as the westernmost point of the Yamal pipeline – a strategically vital pipeline that runs 2,000 km across four countries: Russia, Belarus, Poland, and Germany ironically dropped to 20 million cubic meters per day notably in mid-August, according to ICIS data. Noting that this was down from 49 cubic meters per day at the end of July, and a sudden fall from its typical rate of 81 mcm per day. Yet, this is expected to drop further in September.
In view of this, ‘Marzec-Manser’ made it clear that for Russia to move gas via neighboring energy community states, for instance, Ukraine, it must first purchase access to a pipeline, “like a toll road”. Noting that the Nord Stream 1 route is one option, which is already owned by Gazprom, and flowing at capacity. While the Yamal pipeline is a second major route and, until the end of July, was running at close to capacity as expected.
“Thirdly, you have the Ukrainian route which obviously comes with a lot of political baggage”, he added. “It is the only other way you are going to get gas from Russia to Europe in any significant volume”.
It’s also worth noting that Gazprom typically efficiently uses its booked EU pipe capacity, according to ‘Marzec-Manser’, but the issue here is an unexpected drop in volumes at the end of July along the Yamal pipeline “immediately indicated something was amiss”. On top of this, natural gas flows to Europe dropped again shortly thereafter following a fire at a condensate plant situated in the Siberia city of Novy Urengoy.
Hence, external observers of Gazprom have closely monitored interruptible monthly capacity auctions via Ukraine. As the auctions are widely seen as a key signal to the market of upcoming volumes, the reason being that they take place two to three weeks prior to the month in which natural gas flows. However, a string of no-shows at each auction prompted analysts to question whether the current situation actually evolved due to absent capacity booking via Ukraine was as much to do with Gazprom’s inability to supply as opposed to its unwillingness to deliver.
“If true, this has serious implications on how the global gas and LNG market treats Russian pipe volumes and the availability – or not – of its discretionary supply”, ‘Marzec-Manser’ said.
Yet, another analyst ‘Valentina Bonetti’ of EMEA at S&P Global Platts made it clear that the firm regards the recent drop in Russian flows to Europe “as a consequence caused by a physical upstream issue” that is taking longer than expected to bounce back to full flows. Adding that;
“Gazprom has long prided itself on being very reliable and prompt in restoring supply after accidents”. Equally, she also argued that the recent company’s pivot to a “value-over-volume strategy” had tested the company’s ability to restore natural gas flows aimed at pressurizing the EU to allow a smooth start-up of Nord Stream 2.
Record high gas prices
In recent weeks European gas market prices have skyrocketed over 116% notably since the start of the year, with the ICIS TTF benchmark closing at an all-time high of 47.86 euros ($56.17) per megawatt-hour on August 16, a reflection of a tight market as Europe faces incredibly low natural gas storage levels, hence, a rebounding Asian and South American LNG demand. But following news reported by Gazprom that it plans to supply 5.6 billion cubic meters of gas to Europe this year, trading dropped to 43.2 euros.
Equally, a senior fellow at the Alliance for Securing Democracy ‘Kristine Berzina’ said that “the current drop in gas deliveries and increase withdrawals from storage, which is elevating gas prices across Europe and benefiting Moscow, is firstly a commercial tactic to assist Russia at a time when gas demand around the globe is high”. “But it also shows Europe just how dependent it is on Russia for its gas”.
Noting that it was “notable” for Merkel to threaten sanctions in case Nord Stream 2 was used as a weapon but questioned how Germany or Europe would determine that to be the case.
“Will a slow rise in gas prices that have a geopolitical underpinning be considered a ‘weapon’? … or will only dramatic cut-offs be considered a ‘weapon’?”.