European Gas Rises Amid Outages at Idled Russian Pipelines

  • In Business
  • 2022-09-27 07:56:16Z
  • By Bloomberg

(Bloomberg) -- European natural gas advanced after four days of losses as issues reported at the shuttered Nord Stream pipeline added to uncertainty over future Russian supply.

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Benchmark futures rose as much as 6.4%, after dropping to a two-month low earlier this week. Late Monday, Nord Stream reported a pressure drop on both strings of the pipeline and said it was investigating the incident. The link was shut this month and there's no impact on supplies, but it adds to nervousness in the market.

The event followed an earlier report that checks have begun after Nord Stream 2 -- the controversial idled conduit -- also experienced a sudden loss in pressure, and gas leaks were detected in Danish and Swedish exclusive economic zones.

Nord Stream, running under the Baltic Sea, last year delivered nearly 40% of Russia's gas to Europe. But Gazprom PJSC slashed flows on that route in several steps starting in June, citing technical issues with equipment at its entry point, before halting supplies altogether. Nord Stream 2, which runs close to the first conduit, has been built and filled with technical gas last year but has never delivered any fuel to Europe amid the Kremlin's stand off with the West.

"News that leakages were found at Nord Stream is likely supporting the upside today, as a restart becomes even more uncertain now," analysts at trading firm Energi Danmark said in a note.

The German network regulator's president, Klaus Mueller, said on Twitter that the market situation remains "tense" but the country and the European Union are no longer dependent on Nord Stream supplies. The pipeline's operator issued an outage notice formally active until Oct. 26, while the German economy ministry said it's "in the process of clarifying the matter."

Dutch front-month gas, the European benchmark, was 4.3% higher at 181.37 euros per megawatt-hour by 9:53 a.m. in Amsterdam. The UK equivalent rose 4.7%.

Managing Russia's Cuts

European prices have dropped almost 50% from the highs of August as stockpiles build steadily to meet winter demand and nations take steps to reduce consumption. Storage sites are about 88% full, above the five-year average, even though Russian pipeline exports have dropped to the bare minimum. Strong imports of liquefied natural gas and mild weather forecasts for October -- after the current cold spell -- have also helped market nerves.

Read also: Energy Crunch Will Hurt Like 2009 Crash If Europe Gets It Wrong

The continent may import almost 40% more LNG during the coming winter than in the prior year, according to BloombergNEF. Along with demand destruction resulting from higher prices, those shipments are enough to cover a complete halt in Russian pipeline flows from Oct. 1, it said.

Still, traders are closely watching Moscow's moves to see if the situation deteriorates. There are also concerns about Europe's ability to fill in storages next summer without Russian volumes.

"We have bought another six months to get through the winter, albeit at a high cost in subsidies, and will need to use this time to reinforce a message that this is not going away," said Martin Devenish, a former Goldman Sachs Group Inc. managing director who now works for S-RM Intelligence & Risk Consulting Ltd. "The real crisis is for next winter, and the impact of it may last for 3-4 years if everything stays the same."

Meanwhile, the European Commission, under pressure to come up with proposals to rein the region's worst energy crisis in decades, will postpone publishing its detailed plan on future steps to lower gas prices and ease volatility in the market.

The release of the document, tentatively planned for Sept. 28, is being moved to a later date, possibly next week, according to EU diplomats. Instead, the commission on Wednesday will discuss, in a more technical plan, whether price caps can be implemented.

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