When the markets open on Monday, European gas consumers who are already suffering from record-high prices will suffer even more as Russia said that one of its main supply pipes to Europe would remain closed indefinitely, raising concerns about possible energy restrictions.
Lower Russian gas exports before and during its invasion of Ukraine in February had already increased European gas prices by roughly 400% over the previous year, driving up electricity prices.
In response to the aftermath of the conflict in Ukraine, Europe has accused Russia of weaponizing energy supplies in what Russia has referred to as an “economic war” with the West. Moscow, on the other hand, attributes supply delays to Western sanctions and technical problems.
While traditionally providing almost a third of the gas shipped from Russia to Europe, the Nord Stream pipeline, the one that runs underneath the Baltic Sea towards Germany, was only operating at 20% of capacity last week when flows were stopped for repair.
High hopes were had. After the most recent interruption, Russia’s state-owned energy giant Gazprom will resume flows at 20%, which caused the benchmark Dutch TTF gasoline prices to drop back by over 40% from their record high on August 26 to finish at just over 200 euros each megawatt hour on Friday.
However, analysts predicted that prices would rise once more after Russia postponed a Saturday deadline for the resumption of flows, claiming that it had detected a flaw during maintenance.
Incoming Nord Stream 1 (NS1) flows were already being priced into the market on Friday, according to Leon Izbicki, gas analyst with Energy Aspects. They anticipate the TTF to open much higher on Monday.
High energy costs associated with rising gas prices already have driven several energy-intensive companies, such as producers of fertiliser and aluminium, to reduce output. This has prompted EU governments to invest billions in household assistance programmes.
According to senior associate Jacob Mandel, for commodities at Aurora Energy Research, the impact of the most recent drop would depend on Europe’s capacity to draw gas from other sources.
It gets harder and harder to replenish every bit of gas that doesn’t come from Russia, he continued, adding that supplies are scarce.
Olaf Scholz, the chancellor of Germany, stated on Sunday that his nation has been planning for a complete halt in gas exports from Germany.
Phase 2 of a 3-tier emergency plan to address a reduced supply is being implemented in Germany, Europe’s top gas consumer. Gas restrictions for the industry would start if they moved to stage three.
Following Russia’s invasion of Ukraine, Europe moved quickly to implement measures to reduce its reliance on Russian resources, switching to alternate gas and fuel suppliers and promoting the deployment of sustainable energy sources more quickly.
Germany has started building LNG terminals so that it can stop importing Russian gas and start receiving gas from international suppliers.
For the time being, it is possible to replace the Russian gas with LNG imports; but Mandel noted that when the winter arrives and demand increases in Asia and Europe, and there would only be a finite amount of LNG available for import.
Even if Germany’s gas reserves were 100% full, according to Klaus Mueller, head of the Federal Network Agency, they would run out in 2.5 months if Russian fuel flows were stopped.
Last week, Europe achieved an early goal of having 80% of its November gas needs met. According to data from Gas Infrastructure Europe, EU stocks are presently 81% full, with Germany’s reserves being 85% full.
For the EU to accomplish its goals for the coming year before the winter of 2023, Izbicki predicted that prices would need to rise to an average of about 400 euros each MWh from September 2022 and the end of October 2023.