Russia strengthened its stance on demanding rubles payments from gas importers by halting pipeline supplies to three European companies – Dutch utility company GasTerra, Danish energy company Orsted, and Shell in Germany – after they refused to make gas payments in rubles.
The markets reacted accordingly, with prices jumping 3% on supply concerns, pushing TTF front-month to €94/MWh or US$29.6/million Btu on 31 May, but the rally didn’t last long. The TTF retreated by nearly 6% on 1 June to €88.5/MWh or US$27.8/million Btu as market players realised the impact of the pipeline stoppages would be limited. The contract between Dutch GasTerra and Gazprom was initially set to expire by October, and the missing supply from Russia will be about 2 billion m3 this year, less than 4% of the country’s gas supplies. On the other hand, GasTerra had found alternative options by contracting elsewhere for the 2 billion m3 in anticipation of the gas cut.
The Dutch government also announced it would increase subsidies to €406 million to encourage companies to fill the Bergermeer gas storage facility. Danish Orsted has been in a nearly 2 billion m3/year contract with Russia. In 2021, Denmark imported 1.4 billion m3 of Russian piped gas, making up 60% of its gas supplies. But as its gas demand is much smaller than the top consumption countries like Germany and Italy, Denmark’s supply gap could be easier to find a resolution. After the gas cut, it will turn to the European gas market to fill in the missing supplies.
Germany’s contracted volume between Shell and Gazprom is small, only at 1.2 billion m3/year, compared with total gas imports of 48 billion m3 from Russia in 2021. As such, the German gas supplies are manageable.
Climbing gas storage levels in the three countries are also helping mitigate risks from gas cuts. Underground gas storage in Germany and Denmark reached healthier levels, at 48% and 54% full, compared with 30% and 34% full a year earlier. The Netherlands’ storage has risen to 37% of total capacity, compared with 20% last year.
Following the gas cuts to the three European companies, Russian pipeline flows to Europe fell by 8% from 30 May to 186 million m3/d on 31 May, but slightly rebounded on 1 June by 1.6% day-on-day to 189 million m3/d. However, the upside risk on TTF is offset by increased gas exports from Norway, up 4.7% day-on-day to 333 million m3/d on 31 May. The Norwegian Hammerfest LNG facility resumed operation on 27 May but has yet to export cargoes.
In the UK, low utilisation of regasification facilities, currently below 50%, has been continuing to provide upsides on prices, but they could be offset by the outlook of lower gas consumption in the coming days. In the UK, NBP prices saw a similar trend as TTF, retreating by 12% from the last session to 161.7 GBP/Therms or US$20.4/million Btu at writing, following a 1.4% day-on-day increase on 31 May. The discount of NBP to TTF is widened to US$7.4/million Btu from US$6.4/million Btu a day earlier. Temperatures are expected to trend higher and limit gas demand for heating purposes.
Henry hub prices in the US rose by 3.3% from the previous settlement at US$8.15/million Btu to US$8.41/ million Btu on 1 June. Low gas storage levels and increased gas power demand amid warmer weather and droughts are pushing prices higher, and more upside risk is likely to materialise in the immediate future.
The reduction of Russian gas in Europe provides a knock-on effect on Asia spot LNG prices, which grew from US$23.4/MMBtu on 30 May to US$24.1/MMBtu on 31 May. The prospect of improving demand also provides upsides on prices in the regions. In China, the Shanghai lockdown was fully lifted on 1 June, and districts in Beijing are gradually opening up from the COVID-19 controls.
Read the article online at: https://www.worldpipelines.com/business-news/08062022/russia-cuts-off-more-european-pipeline-flows/