European Gas Set for Another Weekly Gain on Russia's Supply Grip

  • In Business
  • 2022-08-05 06:52:04Z
  • By Bloomberg

(Bloomberg) -- European natural gas prices headed for a third weekly gain as persistent concerns over Russian supply heightens the risk of shortages.

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Benchmark futures are 5.9% higher this week, adding to last week's surge when Moscow slashed supplies through the key Nord Stream pipeline to just 20% of its capacity, citing issues with equipment. But Kremlin insiders have privately said that the cuts are to pressure the European Union over sanctions on Russia, while Berlin has repeatedly said it sees no technical reasons for the reduced flows.

The cuts are reverberating through Europe, lowering industrial output, driving up inflation to the highest in decades and threatening to push major economies into recession. The EU has been racing to stockpile gas for the winter, and is cutting fuel consumption and boosting imports of liquefied natural gas. The bloc has filled about 71% of its storage sites, in line with the five-year average, which has helped keep prices in check in recent days.

The reduction in Russian pipeline flows to Europe has helped push up LNG prices, increasing costs for the EU and other major buyers, analysts at Morgan Stanley said in a note. "With no easy path to meeting Europe's rising call on LNG, we expect global prices to remain elevated and volatile," they said.

Dutch front-month gas, the European benchmark, was 1.4% higher at 201.95 euros per megawatt-hour by 8:50 a.m. in Amsterdam.

Since supplies through the Nord Stream pipeline were slashed last week, flows from Russia have remained stable. Shipment orders for transit through Ukraine, which initially indicated a potential drop on Friday, changed overnight to levels of the past two months.

Read also: Canada Says Ukraine Gas Route Isn't Alternative to Nord Stream

One of Nord Stream's turbines -- critical to boosting flows through the link -- is still in Germany following repairs in Canada, amid a stand-off over its return to Gazprom PJSC. The Kremlin said Thursday that it would like to get the unit back, but the company needs documents to show that it isn't subject to international sanctions. Three more turbines, that are still in Russia and need maintenance, could be subject to the same sanctions risks, according to Gazprom.

Traders also remain on edge as several gas facilities that are crucial for Norwegian supplies to the UK and continental Europe, are scheduled to start seasonal maintenance next week. The works would add to the market's tightness.

Still, there's some better supply news from elsewhere. A major export LNG terminal in the US, shut this year after a blast, signaled this week that it could restart in early October at almost full capacity, which should bring a relief to Europe.

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