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Europe gas falls as return of pipeline part may ease tension

Europe gas falls as return of pipeline part may ease tension

2 min. 11.07.2022
Concerns over Russian supplies and preparation for the winter remain front and centre for European leaders
A pipeline in Germany
A pipeline in Germany
Photo credit: Patrick Pleul/dpa-Zentralbild/dp

European natural gas fell after Canada said it would return a stranded turbine for a key Russian pipeline to Germany, raising optimism that tensions with Moscow over energy supplies will ease.

Benchmark futures dropped as much as 12%. The Canadian move comes as much-needed relief for Germany, and more widely Europe, with deeply reduced shipments through the Nord Stream pipeline threatening the region’s plan to fill storage sites in time for winter and bringing the risk of rationing.

The Kremlin said last week that the equipment would help raise shipments to Europe. Gazprom PJSC has been using just 40% of the pipeline’s capacity since last month after the turbine was sent to Canada for maintenance and wasn’t returned because of sanctions on Russia. Berlin urged for it to be sent back. 

The test will come next week when annual maintenance work on the conduit that started on Monday is set to be completed. Germany had voiced concerns over whether supplies, and how much of it, will resume. Gazprom needs six major turbines to operate the link at full capacity, but not all of the components that are still in Russia are in working condition because they need maintenance, the company has said.

“A crucial unknown” is whether Nord Stream will return from the maintenance and at what levels, analysts at Sanford C. Bernstein Ltd. said.

Europe’s energy industry has been plunged further into turmoil since Russia deepened its supply cuts last month, inflating bills, forcing the government to seek ways to conserve energy and utilities to stay afloat. To make up for the shortfall, Germany has increased imports from Norway, Belgium and the Netherlands, while gas demand in the country has fallen by 15% so far this year, the Bernstein analysts said.

Dutch front-month gas, the European benchmark, was 4.1% lower at 168 euros per megawatt-hour at 4:42 p.m. in Amsterdam, recouping some of the day’s earlier losses after unplanned outages at facilities delivering Norwegian fuel. The UK equivalent contract fell 6.7%.

The Canadian government issued a “time-limited and revocable” permit to exempt the Nord Stream turbine from sanctions on Russia over its invasion of Ukraine, citing the need to help its ally Germany avoid an energy crisis.

Supply return 

Should Russian gas supply return to even the levels before Monday’s Nord Stream shutdown, storage sites could get to 87% full, enough to meet winter demand, analysts at BloombergNEF said. But further cuts would mean consumption has to drop because availability of liquefied natural gas remains scarce, they said. 

A prolonged outage at the Freeport LNG facility in the US, and the Shell Plc’s output halt at the Prelude facility in Australia because of a strike are keeping the market tight. 

“France and the Netherlands have the greatest exposure to LNG sourced from Freeport, with supply from the plant representing 10% and 15% total LNG imports, respectively, since the start of 2022,” BNEF said.

Still, concerns over Russian supplies and preparation for the winter remain front and centre for European leaders. French Finance Minister Bruno Le Maire said the continent must prepare for gas deliveries to be shut off entirely in retaliation for sanctions on Russia.   

©2022 Bloomberg L.P.

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