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Russia keeps Europe waiting on new gas supplies

Headlines 13:59 03 Nov, 2021

Russia provides a third of Europe's gas

Russia keeps Europe waiting on new gas supplies

Russia's Gazprom (GAZP.MM) declined to book extra capacity to ship more gas to Europe from January at auctions on Tuesday, a step that would have helped ease prices in a market haunted by worries about Moscow's intentions, Qazet.az reports citing Reuters.

The Kremlin said Russia remained committed to start pumping additional gas to Europe once domestic storage tanks were replenished, in line with an order given to Gazprom last week by President Vladimir Putin.

Russia provides a third of Europe's gas and its supply intentions are critical at a time when spot prices across the continent have surged, hitting households and businesses alike.

Moscow has said it is meeting its contractual obligations in full though the International Energy Agency and some European politicians have suggested Moscow can do more.

 

Gazprom, however, decided against booking additional gas transit capacity via Ukraine and Poland to Europe for January-September 2022, in a sign it has no plans to supply more than its contractual volumes, at least via these two routes.

Moscow denies it is withholding supplies to exert pressure on German regulators to approve gas shipments through the new Nord Stream 2 pipeline across the Baltic Sea to Germany.

 

Putin has said gas could start flowing through the new pipeline from Russia within a day of approval being granted.

The German regulator has until early January to certify the pipeline but may make its decision earlier. Once it has made its recommendation, it goes to the European Commission, which has another two months to respond. 

Analysts at Jefferies said in a note that the question now was whether Russia would only make additional gas available through Nord Stream 2, which was built despite U.S. sanctions on companies involved in its construction.

Dmitry Marinchenko, senior director at Fitch ratings agency, said Nord Stream 2 appeared to be the reason why Gazprom had held back from booking more gas transit capacity through Ukraine or via the Yamal pipeline across Belarus.

 

"Gazprom is presumably betting on Nord Stream 2 coming online fairly soon - and does not want to assume additional obligations as of now as the Ukraine transit route and the Yamal-Europe pipeline are likely to be used as balancing routes once Nord Stream 2 is up and running," he said.

Gazprom did not reply to a Reuters request for comment.

 

Gas levels in storage controlled by Gazprom in Europe remain at about a third of levels a year ago. Putin has given orders to fill the sites from Nov. 8, when domestic re-stocking is expected to end, and the Kremlin said that remained the plan.

MARKET NERVES

 

Benchmark natural gas prices in Europe have surged some 250% this year, and at one point in early October spiked eightfold as demand shot higher in economies rebounding strongly from last year's pandemic-induced recessions.

Strong demand in Asia and lower-than-expected renewable energy production have also put a squeeze on the market, but traders have said Gazprom's decision not to book more capacity on gas transit pipelines to Europe has made the situation worse.

 

Russia's Yamal-Europe pipeline, meanwhile, which normally sends gas westwards through Poland to Germany, was working in reverse mode for a fourth straight day on Tuesday and was expected to stay that way until at least Wednesday, according to data from German pipeline operator Gascade.

Gas flows into Germany at the Mallnow metering point on the Polish border stopped on Saturday and have not resumed, the data showed. Instead, gas is heading back east across Poland.

 

The reversal, which neither Gazprom, Poland nor Germany have explained, has added to market nerves.

A spokesperson for German utility RWE (RWEG.DE), one of Gazprom's big customers, said: "Our existing supply agreements with Gazprom Export are being adhered to; we are not cut (off)."

 

Ronald Smith, senior oil and gas analyst at BCS brokerage, said Russia appeared intent on filling Nord Stream 2 (NS2) with gas taken from the Yamal-Europe pipeline.

Last month, Gazprom booked only a third of the total additional capacity offered by Poland for November. 

"If NS2 isn't soon approved for launch, however, Gazprom may be forced to request additional, more traditional transit capacity on Yamal-Europe," he said.