Susanna Twidale & Nora Buli

LONDON/OSLO – As Russian gas continues to flow via the major transit routes, consumers in Britain and Europe will face higher gas prices this winter.

A new Nord Stream 2 pipeline connecting Russia and Europe may have helped ease a tight market. However, it is now facing more problems as German certification has been suspended. This was due to opposition from both the United States of America and some Europeans.

The power price shock this year has forced many European and British energy suppliers to close their doors. Because they are not able to always pass up price rises on customers, Britain’s Bulb (6% of its domestic market) was the most recent to fail.

Skyrocketing electricity prices have caused some energy-hungry businesses to reduce production. European homeowners are paying higher heating bills as winter draws near, which is adding to inflationary pressures.

As global economies recover from the pandemic, they sucked gas into their countries, especially Asia, as European stocks remain low. Benchmark European gas prices rose as high as 700% this October. British prices increased 500%.

European gas prices rose more than 300% on Monday, while the benchmark for Britain was at 250%.

The Russian President Vladimir Putin’s October statement that Russia will increase gas supplies by record amounts, easing prices and raising expectations of supply surpluses.

However, major pipeline flows, like Yamal, which connects to Germany via Belarus, Poland and Germany, haven’t increased as expected. There has also been little sign of additional capacity being offered at auction for other routes via Ukraine.

Wayne Bryan, Refinitiv analyst said that he wouldn’t rule out the possibility of a return at the October record highs given the shortfall in the market and the limited Russian flow.

Gazprom, owned by the state (MCX) and having a monopoly over Russian gas pipeline exports says that it has fulfilled all of its long-term agreements. Reuters reached out to European companies and confirmed that contractual obligations were met.

However, supplies to the spot marketplace, on which domestic gas suppliers rely for their supplies, are still low.

According to Refinitiv Eikon data, daily flows did not change from a previous year in September and October. This was due to the main routes linking Russia to Europe, namely, the Yamal route, Nord Stream 1 that runs to Germany, as well the pipeline crossing Ukraine.

COLD-SNAP FEARS

Volumes for November 2020 are slightly higher than that of November 2019, when the economy was shut down by the pandemic. They are also 40% less than November 2019.

Wind and solar, which make up a larger portion of European power supply, cannot be guaranteed that they will fill the electricity demand.

We could again see insane prices if flows slow down, there’s a cold snap or low winds speeds. “We are living hand-to-mouth,” said a gas trader.

Market jitters are increased by the suspension of Nord Stream 2’s certification, as there is more demand during Europe’s heating season (October 1 through March 31).

The European Commission has to approve the project once the German certification has been obtained. This will take two months.

Trevor Sikorski, Energy Aspects analyst, stated that this could indicate that the project will not start gas flow commercially before the end of the third quarter.

He said that it raises concerns about peak supply. This could lead to very high prices, disruptions in gas supply to the industry and even higher prices, especially if we have a lot of cold spells, making winter colder than usual.

Europe’s gas reserves are still well below the average. Gazprom’s storage facilities in northern Europe had a total of 41 terrawatthours (TWh), according to Refinitiv Eikon data. For the same day, 2017-2020, it was 113 TWh.

“Since Nov. 9 injections at Gazprom-controlled storage within Europe have averaged only 5 million cubic metres/day, which is quite insignificant,” said James Huckstepp, manager EMEA gas analytics at S&P Global (NYSE:) Platts.

Asian countries have taken in supplies of LNG, driving up the cost of LNG shipping and increasing Europe’s challenges in rebuilding stockpiles.

Sikorski reported that “The JKM” (Japan Korea Marker Asian benchmark) continued to value at sufficiently high premiums in order to sustain LNG flow into the area at the expense Europe.

“A colder than normal winter – likely given La Nina weather patterns – will likely mean that little incremental LNG will be available,” he said.

Russian gas exports to Europe via three main routes https://tmsnrt.rs/3CspAnr

Inventory of Gazprom controlled storage sites in Northwest Europe (TWh) https://tmsnrt.rs/2Z1b1tp

EXPLAINER – Why Russian gas exports have a greater influence on British and European prices

German regulator puts brake on Nord Stream 2 in fresh blow to gas pipeline https://www.reuters.com/business/energy/german-energy-regulator-suspends-nord-stream-2-certification-makes-demands-2021-11-16/

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