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Nord Stream 2 Could Crush European Natural Gas Prices

We recently wrote about Europe's soaring, record gas prices as Russian nat gas supplies have been suspiciously low, amid growing concerns about Europe's inventory levels as the winter approaches.

Russia

The price uptrend was finally broken yesterday - if only for the time being - when as Bloomberg's Stephen Stapczynski explains, Dutch nat gas futures prices (TTF) plummeted by 10% after data suggested Nord Stream 2 started flowing. But that data turned out to be incorrect, and prices quickly rebounded recovered.

Gas

But then European nat gas prices plunged once again today, and again it was on the prospect of more Russian supply, after Gazprom said it's likely to deliver 5.6bcm of gas this year via the Nord Stream 2 pipeline. As Stapczynski updates, "possible flows keep spooking the market and prices are now down ~11% from the record high on Monday."

Record

Then again, a little bit of context on the recent Dutch natural gas price rally courtesy of the Bloomberg reporter:

Europe

And if the gas doesn't start flowing for real, we expect even higher highs. This could be challenging because hurdles remain before Nord Stream 2 can start. Stapczynski quotes OxfordEnergy's Katja Yafimava who said that "the first line of NS2 might be getting tested. But it is too much of a wishful thinking on part of the market to believe that the line is ready for commercial operations” Related: Europe Faces LNG Supply Crunch

Russia, naturally, presented a different view: "assuming the pipeline will reach utilization of 70% from the design capacity in December and its gas-in will be gradual, Gazprom probably anticipates full-fledged supplies can start approximately in October”

Meanwhile, ICIS expects Nord Stream 2 to flow 8.1 bcm in 2021:

One final point via Bloomberg: "Before carrying the first gas flows to Europe, Nord Stream 2 needs to obtain insurance and certification, a task made difficult by U.S. sanctions that restrict providing these services to the project."

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In short: if Russia is indeed preparing to ship much-needed product to Europe, then the price of nat gas could plummet. Alternatively, should Russia continue to toy with the continent as we enter fall, and especially winter, the current record prices will seem like Bitcoin in 2014. A good time to buy straddles?

By Zerohedge.com

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Leave a comment
  • Mamdouh Salameh on August 22 2021 said:
    I thought the Europeans should be happy if Nord Stream 2 gives them lower natural gas prices. Still the saga goes on if not for one thing it is for another.

    Nord Stream 2 is a fait accompli. It is built and it will supply natural gas to Germany and the EU this year.

    If the full might of US sanctions failed miserably to stop the construction of Nord Stream 2, does anybody in his full faculties believe even for one moment that the sanctions will make it difficult for the gas pipeline to obtain insurance and certification?

    Germany which never budged in its support of Nord Stream 2 will ensure that the EU issues the necessary documentations. The alternative will be that Germany will itself issue these documentations and start receiving cheap supplies of Russian natural gas.

    Nord Stream 2 has won game, set and match against US sanctions.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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