By Vladimir Soldatkin

MOSCOW (Reuters). – European gas traders are relying upon stockpiles in order to avoid high prices and supply European customers, according to market sources. This explains the unexpected reverse flow direction through a large Russian pipeline.

Yamal Europe Pipeline’s 33 billion cubic metres (bcm), which represents about one-sixth of Russia’s exports to Europe, Turkey and Europe, is in reverse mode. Since Dec. 21, gas has been shipped from Germany east to Poland.

Although Poland failed to sign a new supply agreement with Russia for gas last year, traders from the country have started using their contracted quantities from Gazprom (MCX).

They would have to pay high spot prices for extra Russian gas, which could lead them to draw from storage instead. Although they hope prices will fall by then, the risks are that stocks may be too dependent on the stock market, which could lead to the market staying high for longer.

Gazprom spokeswoman Sergey Kupriyanov said that gas was being taken from Europe’s underground storage facility in Germany.

He stated that it was not rational for stockpiles to be drained during the winter peak season.

He said that Gazprom had received orders from France and Germany to purchase additional gas annually.

Gazprom is France’s principal partner, Engie. In Germany it is Uniper Wingas Shell (LON :), Wintershall Dea.

They have yet to respond to our requests for comment.

Gazprom said Thursday that Europe had withdrawn over 45% of its gas injected this year.

NEW YEAR, NEW DIRECTION?

Gazprom’s source said that the pipeline would resume normal westward flow of gas in early January. He spoke on condition of anonymity as he wasn’t authorized to talk to the media. Gazprom is currently using 8.3 million kWh/h (kWh/h), as transit gas capacity through the pipeline.

Gazprom, in absence of Poland’s long-term gas agreement, has reserved the short-term transit capability, however, it hasn’t done so for the past 10 days. West critics claim Gazprom is adding to pressure on the price, something Russia denies.

Russia has been at war with the West on a variety of issues. It is currently waiting to receive approvals from Germany, EU and other European Union countries for Nord Stream 2’s gas pipeline to Germany. Russian President Vladimir Putin said that supply through the new link might calm prices. https://www.reuters.com/markets/commodities/putin-declares-nord-stream-2-ready-gas-exports-2021-12-29

He claimed also that Germany was selling Russian oil to Ukraine and Poland.

Putin’s remarks were not addressed by the German Economy Ministry.

“The market’s current flow direction mirrors the behavior of its players. Federal Grid Agency Germany stated that the German market can be supplied by other routes.

Europe has seen a steady increase in price volatility due to reverse flows. Last week’s benchmark gas prices reached an all time high at more than 180 euro per megawatt-hour, which is a significant increase from the 19 euros recorded in 2021.

Since last week’s arrival of LNG, prices have fallen to under 100 euro.

Alexei Grivach, Moscow-based National Energy Security Fund stated that current spot prices are unfeasible for the majority of industrial consumers.

He said that for some buyers of gas, it may be more lucrative to take more from underground storage. Others seek to send LNG (liquefied) volumes to Europe.

A spokesman for Polish energy company PGNiG acknowledged the reverse flows were happening but would not go into detail.

The spokesman stated that it was impossible to confirm that the gas from Germany will be going to PGNiG as there are so many companies in the marketplace.

Katja Yafimava is a senior research associate from the Oxford Institute for Energy Studies Gas Research Programme. She stated that Gazprom does not have to book Yamal’s capacity, even if it has no gas demand on the other side.

“So the European buyers have a choice of drawing gas from storages and liquefied natural gas  – or asking Gazprom to conclude new contracts/amend existing contracts allowing for higher volumes,” she said.