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

By Susanna Twidale

LONDON (Reuters) -European gasoline consumers already grappling with record-high costs face additional ache when the markets open on Monday after Russia stated considered one of its fundamental provide pipelines to Europe would stay shut indefinitely, sparking fears over power rationing.

Decrease gasoline flows from Russia forward of and following its February invasion of Ukraine have already pushed up European costs by almost 400% over the previous yr, sending electrical energy prices hovering.

Europe has accused Russia of weaponising power provides in what Moscow has referred to as an “financial battle” with the West over the fallout from the Ukraine battle, whereas Moscow blames Western sanctions and technical points for provide disruptions.

The Nord Stream pipeline, which runs below the Baltic Sea to Germany, traditionally equipped round a 3rd of the gasoline exported from Russia to Europe, however was already working at simply 20% of capability earlier than flows have been halted final week for upkeep.

Expectations have been excessive Russia’s state-controlled power large Gazprom would restart flows at 20% after the newest stoppage, main benchmark Dutch TTF gasoline costs to fall again round 40% from Aug. 26’s file excessive to shut at simply over 200 euros per megawatt hour on Friday.

However after Russia scrapped a Saturday deadline for flows to renew, saying it had found a fault throughout upkeep, costs are prone to surge once more, analysts stated.

“On Friday… the market was already pricing in Nord Stream 1 (NS1) flows coming again,” Vitality Points gasoline analyst Leon Izbicki stated. “We count on a considerably stronger open for the TTF on Monday.”

Sky-high energy prices linked to surging gasoline costs have already compelled some energy-hungry industries, together with fertiliser and aluminium makers, to cut back manufacturing, and led EU governments to pump billions into schemes to assist households.

The influence of the newest minimize would rely on Europe’s means to draw gasoline from different sources, Jacob Mandel, senior affiliate for commodities at Aurora Vitality Analysis, stated.

“Provide is difficult to come back by, and it turns into tougher and tougher to switch each little bit of gasoline that doesn’t come from Russia,” he stated.

TOTAL HALT

German Chancellor Olaf Scholz stated on Sunday his nation had been getting ready for a complete halt in gasoline deliveries from Germany.

Germany, Europe’s largest client of gasoline, is at part two of a three-stage emergency plan to cope with decrease provide. A transfer to stage three would see some gasoline rationing to business.

Following Russia’s invasion of Ukraine Europe quickly launched plans to chop its dependence on Russian fuels, switching to different suppliers of gasoline and different fuels and pushing quicker deployment of fresh power provides.

Germany has begun creating liquefied pure gasoline (LNG) terminals to allow it to obtain gasoline from world suppliers and transfer away from Russian gasoline imports.

“There’s loads of scope to switch that (Russian) gasoline with LNG imports for now, however when the climate turns chilly and demand begins to choose up within the winter in Europe and Asia, there’s solely a lot LNG on the market that Europe can import,” Mandel stated.

Klaus Mueller, president of the Federal Community Company power regulator, stated in August that even when Germany’s gasoline shops have been 100% full, they’d be empty in 2.5 months if Russian gasoline flows have been halted fully.

Europe final week met early a goal to fill its gasoline shares by 80% by November. EU shares are at the moment 81% full, in accordance with Fuel Infrastructure Europe knowledge, with Germany’s shops at 85% full.

Izbicki stated costs would want to achieve a mean of 400 euros per MWh between September 2022 and end-October 2023 to encourage sufficient sellers to ship gasoline to storage for the EU to fulfill its targets for subsequent yr forward of winter 2023.

Russian gasoline remains to be at the moment flowing to Europe by means of pipelines by way of Ukraine, however hypothesis is now mounting over whether or not that too may very well be halted.

“We’re shifting focus to the (gasoline) … that continues to move to Europe by means of Ukraine,” James Huckstepp, EMEA gasoline analyst at S&P International Platts, stated in a Twitter submit. “Solely a matter of time…”

(Reporting by Susanna Twidale; Modifying by Jan Harvey)