EU gas and power tumble after Putin’s order to add fuel
European natural gas and power dropped after more signals from President Vladimir Putin that Russia will send extra gas to the continent next month.
The Russian leader ordered Gazprom late on Wednesday to focus on filling its European storage sites from November 8, a day after it completes the process in Russia. He said it should ease supply tightness in Europe, where high prices are squeezing industry and fuelling inflation.
Benchmark Dutch gas for next-month delivery dropped as much 12% early on Thursday. German power also slumped.
It’s the latest intervention in the market from Putin to talk down gas prices, even as some European officials suspect he’s been holding back supply to pressure Europe into approving a controversial new pipeline.
Russia is also concerned that excessively high prices could destroy demand, and would like to see them fall by about 60%, according to people familiar with the situation.
Higher Norwegian gas flows and a drop in Chinese coal prices are also adding downward pressure to prices, Engie EnergyScan said in a note. Norway’s Equinor ASA promised on Wednesday to boost exports. Maintenance at its giant Troll field in December will be shorter than previously planned, system operator Gassco said on Thursday, also a bearish factor.
Tom Marzec-Manser, an analyst at pricing agency ICIS, said the timing of Putin’s comments on adding fuel to Gazprom’s storage sites in Germany and Austria could be connected to Germany’s Economy Ministry saying on Tuesday that certification of Nord Stream 2 wouldn’t pose any risks to security of supply.
That move “will have been received positively in Moscow as it brings the new pipeline one step closer to operation,” Marzec-Manser said.
The gas-price drop “clearly highlights the relief in the market over upcoming additional supply,” he said. “Yet we still don’t know how much extra gas could arrive from November 8 in response to President Putin’s instructions. So a certain amount of risk needs to remain until flow profiles change.”
While benchmark European gas has halved from breaking record after record earlier in October, there’s still concern that prices could soar again in the event of a cold winter as supplies from Russia remain capped and competition with Asia for cargoes of liquefied natural gas is intense.
Russia’s focus on rebuilding domestic gas inventories depleted after a bitter winter, combined with low storage rates at Gazprom sites in the European Union, has become a major concern for the continent’s market, which is struggling with an energy squeeze. Europe started the heating season with the lowest inventories in more than a decade.
Gazprom said on Wednesday that the Russian re-injection campaign would be a week longer than the original November 1 conclusion.
Dutch front-month gas was down 9% at €79.10 a megawatt-hour by 10.44am in Amsterdam, after closing lower on Wednesday. The UK equivalent declined 9.1% to 198.70 pence (€2.35) a therm.
German power for next month and first quarter of next year where both down 10%, to the lowest since the end of September, with fuel prices for nation’s fleet of thermal power plants declining. Carbon emissions also fell the most in a week, improving fossil-power generation margins.
©2021 Bloomberg L.P.
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