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Natural gas prices in Europe jump after Ukraine blocks Russian flows

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KYIV, UKRAINE – Serhiy Makogon is Director General of Gas Transmission System Operator of Ukraine LLC. From Wednesday, May 11, 20,22, the GTSOU will stop Russian gas flow through two important entry points to Russian-occupied territory.

Yuliia Ovsiannikova/ Ukrinform/Future Publishing via Getty Images

European natural gas prices rose after the suspension of Russian flows by Ukraine’s grid operator through an important entry point.

Gas TSO of Ukraine on Tuesday announced force majeure – unforeseeable circumstances that prevent the fulfilment of a contract – the first declaration of its kind since Russia invaded Ukraine on Feb. 24. From Wednesday, it said it wouldn’t accept Russian gas flowing through the Sokhranivka Entry Point.

Gas transport was also stopped by the operator at its Novopskov border compressor station. This is where almost one-third of Russia’s gas, up to 32.6 millions cubic meters per day, travels from Russia to Europe.

According to data from Refinitiv, TTF European natural gaz prices rose more than 6.4% on Wednesday at 9:15 AM London time.

The Sokhranivka and Novopskov gas metering stations are located in Russian-occupied eastern Ukraine. GTSOU blamed the “acts of the occupiers”, for the disruption to gas transit.

GTSOU stated in a statement that “as a consequence of the Russian Federation’s military aggression towards Ukraine, many GTS facilities were located on territory temporarily controlled Russian troops and occupation administration.”

GTSOU is unable to provide operational and technical control over the CS “Novopskov” and any other assets in these areas. The stability and safety in Ukraine’s gas transport system was also threatened by the intervention of the occupying force in technical processes, as well as changes to the operation of GTS facilities. This includes unauthorized gas offtakes and gas transit flows.

According to the operator, it will still be capable of fulfilling its transit obligations to European counterparts by routing gas to the Sudzha interconnection points. This point is situated in Ukrainian-controlled territory.

“The company repeated the information GazpromConcerning gas transit risks due to Russian-controlled occupation forces, GTSOU stated that they urged the government to stop interference with the facility’s operation. However these appeals were not heard.” GTSOU concluded.

Gazprom spokesperson Sergei Kupriyanov said that Ukraine’s request was “technologically unimaginable” and that Gazprom sees no basis for making the decision. This according to The Associated Press.

Timothy Ash (BlueBay Asset Management senior EM sovereign strategist) said Wednesday in an email that he was amazed that Ukraine has not reduced gas and energy transit earlier in spite of Europe’s energy blockade.

He said that Russia is already hitting Ukrainian fuel supplies and depots, which might be a Ukrainian reaction to this.

Russia’s threat to cut off gas supplies to Europe has led to the European Union to ramp up its search for alternative suppliersRussia is responsible for 40% of EU natural-gas imports.

Economists, traders and others have cautioned that the economy is at risk. full-blown energy blockadeThis could lead to inflation and pricing problems. Bill Perkins, a veteran natural gas trader told CNBC that this move could cause “catastrophic pricing” in the winter.

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