Goldman says Russia conflict could curb gas flows indefinitely

Nord Stream 2 pipeline construction Source: Nord Stream

Russian natural gas flows to Europe could be curtailed for “an indefinite period” if the nation’s new pipeline project to Germany is hit by sanctions as a result of escalating tensions over Ukraine, according to Goldman Sachs Group Inc.

The bank still assumes that the Nord Stream 2 pipeline will begin service in the second quarter but delays in the approval process might push it to later in the year or even longer amid escalating Russia-Ukraine tensions, it said in a note. Gas prices could also briefly revisit record levels seen in the middle of December, or even shoot higher.

“Should tensions between Russia and the Ukraine escalate, the initial uncertainty around its impact on gas flows would likely lead the market to once again add a significant risk premium to European gas prices,” said the bank’s analysts, led by Samantha Dart. 

Lower Russian gas flows – already the case since the second half of last year – could extend into the summer months. But as the region is battling an energy crunch, the European Union is unlikely to block any existing gas flows from Russia, the bank said. 

Even if gas flows from Russia return to normal this summer, the market in northwest Europe is set to be tighter than the five-year average until at least 2025, after several gas-liquefaction projects currently under construction begin service.

“We expect the tightness in European gas markets to linger for another three years,” Goldman’s analysts said.

© 2022 Bloomberg L.P.

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