The Commodities Feed: Gas supply risks

Wednesday, 28 September 2022

European gas prices rallied yesterday following Nord Stream developments, along with growing supply risks for Russian gas coming to Europe via Ukraine.

Growing uncertainty mounts as we head closer to the winter season, suggesting that we could see increased volatility in gas prices.

Unsurprisingly, given the latest developments in the European natural gas market, TTF rallied yesterday, settling more than 7% higher on the day.

Three leaks were detected along both the Nord Stream 1 & 2 pipelines, which appear to be due to sabotage. However, from a supply perspective, little has changed?given that the Nord Stream 2 pipeline has never come into commercial operation, whilst flows along the Nord Stream 1 pipeline came to a complete halt in late August/early September.

However, this latest incident suggests that flows along Nord Stream 1 are unlikely to restart for?the foreseeable future. In addition, with suggestions that the leaks are due to sabotage, there will be safety concerns around other European energy infrastructure.

Another development that could have a more immediate impact on gas supplies to Europe was a warning from Gazprom that Russia could impose sanctions on Ukraine’s Naftogaz due to ongoing arbitration.

This is an important development to watch because if Naftogaz is sanctioned, Gazprom will not be able to pay transit fees to the company for Russian gas which goes via Ukraine to Europe.

Therefore, the risk is that these flows come?to a complete halt, which will only tighten up the European market further as we move towards the heating season. At the moment, flows via Ukraine are in the region of 42mcm/day, and if these were to stop it would leave flows via Turkstream as the only route to Europe for Russian pipeline gas.

Source: ING