Conflicting messages from Russia suggest that there are no signs of the situation easing, analysts say

Russia’s biggest gas pipeline to Europe, Nord Stream 1, resumed operations on Thursday after a 10-day shutdown for maintenance, partially ending speculation that Moscow could cut off gas supplies to the continent for good, as early as July.

Russian state-owned energy company Gazprom confirmed that gas flows restarted at 63 million cubic metres per day (cmd) — equal to 40% of the pipeline’s overall capacity.

However, concerns linger on whether Russia will be able to maintain uninterrupted gas supplies to Europe due to Moscow’s stand-off with western powers over its military offensive in Ukraine.

“The political uncertainty and the 60% reduction from mid-June, unfortunately, remain in place,” Klaus Mueller, head of Germany’s power grid regulator, said on Thursday.

The 60% reduction in gas flow was caused by an issue related to a turbine, which was sent back to Germany on July 17 and is expected to reach its destination on July 24.

It is widely expected that several more days will be needed for installation once it returns to site — and even if everything goes well, flows may not return to the full capacity of 160 million cmd.

Russian President Vladimir Putin issued a warning on Wednesday that “flows could be reduced further or stopped” because the quality of serviced equipment could not be assured.

“Conflicting messages from Russia continue to weigh heavily on prices and sentiment in the gas market, despite flows returning … through the Nord Stream 1 pipeline from Russia to Germany,” said Karolina Siemieniuk, an analyst at Oslo-based Rystad Energy.

The stoppage of gas flows through the 1,224-kilometre Nord Stream 1 pipeline has been the main factor elevating prices in recent weeks, she said.

The price of the Dutch Title Transfer Facility (TTF) — a virtual trading point for natural gas in the Netherlands — hit a high of $54.8 per metric million British thermal units (btu) on July 7, and after the restart of flows on July 21, have reduced slightly to $46.5 metric million btu.

“Flows on Nord Stream 1 are by no means certain, though prices may ease further if Gazprom surprises the market by keeping volumes stable,” said Ms Siemieniuk.

However, further disruptions are expected as Russia seeks to “increase political and economic pressure on Europe as winter approaches”, said Penny Leake, a European gas and liquefied natural gas research analyst at Wood Mackenzie.

“It remains unclear what Russia will do. There is a risk that Nord Stream flows will reduce below the 40% capacity seen before the maintenance,” she said.

For months, European leaders have been dealing with the prospect of losing Russia’s natural gas supply, which accounts for about 40% of European imports and has been a crucial lifeline for the continent.
Ms Siemieniuk said the entire European energy system was going through a crisis, “and even with [the] restart of Nord Stream 1, the region is in a tight position, with continued risk to energy security”.

Further disruptions are expected as Russia seeks to increase political and economic pressure on Europe as winter approaches.

The International Energy Agency (IEA) has been warning Europe of the impending crisis, urging the EU to put in place appropriate contingency plans.

“The gas crisis in Europe has been building for a while and Russia’s role in it has been clear from the beginning,” the agency’s executive director, Fatih Birol, said on Monday.

The EU will now need to take immediate steps ensure it has enough stocks to last throughout winter.
If Nord Stream 1 flows remain at a minimum of 40% of capacity and imports through other routes remain at the levels reported since June 17, before the maintenance began, Europe will be able to refill storage to more than 80% by November 1, 2022, and manage gas demand during the winter, said Wood Mackenzie.

“Gas demand is expected to be 12% lower than previous winters, due to high prices and demand mitigation measures, including the reintroduction of old coal plants,” Ms Leake said. Wood Mackenzie expects that Europe will be able to pull through the winter season with a comfortable level of storage under normal weather.

In an alternate scenario, if Russia decides to reduces Nord Stream flows to zero by August this year, Europe will only be able to refill its storage to between 70% and 75% by the start of winter, and could finish the heating season with only about 10 billion cm of gas in storage, risking some demand curtailments.

According to Wood Mackenzie’s analysis, if winter is unusually cold in Europe and Asia, there is a risk that gas in storage could run out by the end of February 2023.

In all scenarios, the impact will differ by countries. The ones most dependent on Russian gas, such as Germany, Austria and Central and Eastern Europe, will be most exposed.

One thing is clear — volatility and uncertainty will persist, meaning that demand and solidarity measures across Europe are required now so we can avoid leaving European gas balance to chance.
Overall, the uncertainty over Russian gas supplies to Europe remains and the EU countries will need to work hard on co-ordinated efforts to avert a potential crisis before winter.

European Commission President Ursula von der Leyen, who unveiled a EU-wide rationing proposal on Wednesday, said Europe needed to be ready, whether there was a partial gas cut-off or a major one from Russia.

“One thing is clear — volatility and uncertainty will persist, meaning that demand and solidarity measures across Europe are required now so we can avoid leaving European gas balance to chance,” Ms Leake said.

Ms Siemieniuk said Europe’s situation “does not look bright” but noted that the EU has begun to take more serious steps towards solving the energy crisis it is facing.

“European countries will need to work together fast if they are to survive the winter relatively unscathed, and even if they do, the spectre of the next winter in 2023/2024 is likely to keep prices elevated for months on end,” she said.

The National


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