Europe gas rises as Russian supply via key route stays in focus

European natural gas prices rose as Russian supply through a major pipeline remained at the center of traders’ attention despite stable shipments for a second day.

The market is turning its focus to how long Moscow will maintain the level of flows through the Nord Stream pipeline. Shipments resumed at 40 per cent of capacity following the end of maintenance on Thursday, but Russian President Vladimir Putin has warned that they could decline to 20 per cent if a turbine that’s stuck in transit isn’t received in time to replace another that’s likely to need repairs.

The critical component was first held up in Canada because of sanctions on Russia, and was still in Germany on Thursday. Supply via Nord Stream has reverberated through the European economy and markets for weeks, and pushed once-stable utilities to seek government bailout. Despite the restart of supply at the levels immediately before the maintenance shutdown, European officials aren’t convinced that fuel will keep flowing as the crucial winter months approach.

Europe is scouring the world for alternate supplies, but Russian gas remains critical to replenish storage sites to keep the lights on and homes warm in the winter. If Moscow continues to send gas at 40 per cent of Nord Stream’s capacity and then halted it in October, Europe would likely run out of fuel some time in April, Deutsche Bank AG said in a note.

Dutch front-month futures, the European benchmark, increased as much as 6.6 per cent, and were 5.2 per cent higher at 163.76 euros per megawatt-hour at 10:34 a.m. in Amsterdam. The U.K. equivalent rose 9.6 per cent to 324.48 pence a therm.

Europe is investing in LNG import facilities so that it can use more supplies from elsewhere, which may sway Moscow’s decision-making in the short-term, Rystad Energy analyst Karolina Siemieniuk said in a note. “The country, therefore, has an incentive to keep the gas flowing for now to maximize” revenue before the shift away from Russian gas gets underway in earnest, she said.

Meanwhile, the continent’s increasing demand for LNG is putting pressure on global supplies. Japan bought its most expensive LNG shipment this week. 

© 2022 Bloomberg L.P.

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