Russia cuts off more European pipeline flows and other regional markets rise
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 per megawatt-hour (MWh) or $29.6/MMBtu on May 31, but the rally didn’t last long. The TTF retreated by nearly 6% on June 1 to €88.5/MWh or $27.8/MMBtu as market players realized 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 Bcm 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 Bcm in anticipation of the gas cut.
|
Advertisement: The National Gas Company of Trinidad and Tobago Limited (NGC) NGC’s HSSE strategy is reflective and supportive of the organisational vision to become a leader in the global energy business. |
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 Bcm/year contract with Russia. In 2021, Denmark imported 1.4 Bcm 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 Bcm/year, compared with total gas imports of 48 Bcm 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 May 30 to 186 MCMD yesterday but slightly rebounded today by 1.6% day-on-day to 189 MCMD. However, the upside risk on TTF is offset by increased gas exports from Norway, up 4.7% day-on-day to 333 MCMD on May 31. The Norwegian Hammerfest LNG facility resumed operation on May 27 but has yet to export cargoes.
In the UK, low utilization 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 $20.4/MMBtu at writing, following a 1.4% day-on-day increase on May 31. The discount of NBP to TTF is widened to $7.4/MMBtu from $6.4/MMBtu 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 $8.15/MMBtu to $8.41/MMBtu today. 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 materialize in the immediate future.
The reduction of Russian gas in Europe provides a knock-on effect on Asia spot LNG prices, which grew from $23.4/MMBtu on May 30 to $24.1/MMBtu on May 31. The prospect of improving demand also provides upsides on prices in the regions. In China, the Shanghai lockdown is fully lifted today and districts in Beijing are gradually opening up from the Covid controls.
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.