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Natural Gas Prices Rebound Following Yamal-Europe Pipeline Shutdown

  • Gas prices have recovered from a January slump following the shutdown of a key European pipeline.
  • Rising tensions in Ukraine could add further upward pressure on the already-tight market in the coming months. 
  • The United States is looking to capitalize on the geopolitical turbulence, sending more and more LNG to Europe. 

Gas prices have recovered from a mini-slump this month after flows in the Yamal-Europe pipeline were halted in both directions.

UK Natural Gas prices have risen to 3.3 percent to £1.87 per therm, after weeks of stagnation, while the Dutch TTF Futures benchmark has enjoyed a similar three percent bump to €78.50 per megawatt hour.

Prices spiked after data from German network operator Gascade showed that flows on the Yamal-Europe pipeline were suspended.

Flows had moved eastwards towards Russia since December 21, piling further pressure on European supplies.

While flows have now stopped moving away from Europe, the pause has dashed last night’s hopes of more exports into the continent.

Gazprom booked transit capacity for eight hours on Tuesday evening, and the pipeline even recorded an hour of western flows, before coming to a standstill in both directions.

Prices have dipped since the December peak, but could be revived following the latest news of turbulence on a key pipeline (Source: ICE Dutch TTF Futures)

The route provides one-sixth of Russia’s gas supplies into Europe and Turkey, and has come under increased media scrutiny and persistent tensions between the Kremlin and the West over the future of Ukraine.

Since the start of the year, over 100,000 Russian troops have massed near the border of traditional gas-transit nation Ukraine, raising fears of an invasion.

The International Energy Agency has previously accused Russia of deliberately withholding gas to help to drive prices to record levels and put pressure on Europe to approve the Nord Stream 2 pipeline, which would double its exports into Germany and minimise Ukraine’s role in the energy network.

Russian President Vladimir Putin dismissed accusations last year as ‘politically motivated blather’.

Related: Exxon, Chevron Eye Major Boost In Permian Oil Production

Moscow is still waiting for Germany’s regulators to approve the link, while the EU has now paused its own separate approval process for the pipeline amid compliance concerns.

Prices recover from January’s slump as EU manages energy crisis

Gas markets dipped last month after reaching record levels in December, with prices soaring to over £4 per therm in the run-up to Christmas.

The US has been boosting the trading bloc’s liquified natural gas (LNG) supplies, while the continent further benefitted from a revival in renewables amid windier weather.

Ron Smith, BCS Global Markets told City A.M. the weather has been ‘very co-operative’ over recent weeks, with both wind and unseasonal patches of warmth driving down gas demand.

He said: “In January, Europe had some above-average winds and above-average temperatures. While the temperatures are more important than the winds they both play an effect these days."

The continent has been the top destination for US supplies for two months running, according to the latest reports from Refinitiv.

About two-thirds of U.S. LNG volumes went to Europe last month, compared to 61 percent in December, while the EU’s facilities for LNG conversion have risen from 51 percent to 75 percent of capacity over the past month.

Henri Patricot, equity research director at UBS, was optimistic that Europe had managed the worst of the gas market turbulence this winter

He said: “Inventory levels are still much lower than usual but the gap versus average has not widened. We are of course gradually getting closer to the end of the winter so the risk of an extreme scenario for gas storage diminished.”

Nevertheless, the latest reports about the EU’s energy reliance on Russia are fairly definitive, meaning that macro-factors such as rising geopolitical tensions remain a potential factor.

Bruegel believes the EU would only be able to temporarily cope without Russia supplies, while Stifel has warned that the UK’s wholesale prices could quadruple if Russian flows were disrupted by sanctions or conflict in the region.

By CityAM

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Leave a comment
  • Mamdouh Salameh on February 06 2022 said:
    Europe’s energy crisis and global shortages of natural gas and LNG supplies will continue throughout 2022 and probably far beyond with gas and LNG prices remaining high.

    The reason is the very low level of Europe’s gas storage amounting to 14.9 billion cubic metres (bcm) or 26% of capacity and the surging demand for LNG and gas in the Asia-Pacific region.

    Russia isn’t going to ship additional gas supplies to the EU until Nord Stream gas pipeline is certified by the German and EU authorities.

    The bulk of Russian gas exports are now headed to China. A deal signed two days ago between Gazprom and China’s CNPC for the supply of additional 10 bcm/y of Russian piped gas to China comes on top of an already existing mega deal to supply 38 bcm/y for the next thirty years via the Spirit of Siberia gas pipeline.

    The entire LNG exports from the United States, Qatar and Australia could hardly replace the almost 200 bcm/y piped by Russia to the EU in addition to an estimated 15-16 million tons a year (mt/y) of LNG. Moreover, Europe has a limited LNG import capacity. This makes ramp-ups of LNG imports quite useless particularly if they are needed to replace Russia’s almost 40% share of the European gas market.

    Moreover, the energy balance of power between the EU and Russia has shifted decisively towards Russia. By increasing its gas exports to China, Russia is telling the EU that it isn’t dependent on the European gas market for its gas exports. It has a far bigger market in China.

    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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