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European gas prices hit all-time highs as Russian flows slump

Credit: REUTERS/EVGENIA NOVOZHENINA

European gas prices surged to all-time highs on Friday as Russia kept a tight lid on supply, signalling further price pressures on European consumers heading into the winter heating season.

By Vladimir Soldatkin and Katya Golubkova

MOSCOW, Oct 1 (Reuters) - European gas prices surged to all-time highs on Friday as Russia kept a tight lid on supply, signalling further price pressures on European consumers heading into the winter heating season.

Russian gas supplies via the Yamal-Europe pipeline fell on Friday by almost 77% from Thursday, according to data from grid operator Gascade, as Kremlin-controlled Gazprom GAZP.MM booked only a third of its available capacity for October.

The drop comes at a critical juncture for Europeans who are facing surging utility bills amid a fight for supply.

"Gazprom’s decision not to book for October the full capacity available at one of the main pipelines that delivers gas to Germany poses an increased tightening risk to north-western European gas balances and, hence, further upside risk to TTF prices this winter," Goldman Sachs said in a note.

The November gas price at the Dutch TTF hub, a European benchmark TRNLTTFMc1, hit an all-time high of 97.73 euros per megawatt hour (MWh) earlier on Friday, up around 400% this year, before easing slightly.

Demand for gas has soared as the post-pandemic recovery meets low inventories with stiff competition for supplies from Asian buyers - China, for example, is seeking more liquefied natural gas (LNG) cargoes despite record prices as its own winter season starts.

Nonetheless Gazprom has come in for criticism. A group of European Parliament lawmakers has asked the European Commission to investigate the company's role in the rising prices, saying its behaviour had made them suspect market manipulation and an "effort to pressure" Europe to agree a fast launch of its Nord Stream 2 gas pipeline.

The Kremlin reiterated on Friday that Gazprom, whose gas exports outside the former Soviet Union rose 15.3% year on year in the first nine months of 2021, was meeting all its contract obligations in full.

"Gazprom is supplying gas in accordance with customers' requests under contract obligations," the company said in separate emailed comments on Friday.

German utility Uniper UN01.DE, one of Gazprom's biggest clients, confirmed Russia was fulfilling all its contract obligations to it.

NO RELIEF FOR TIGHT MARKETS

Physical flows via the Yamal-Europe pipeline, which traverses Poland, dropped to 5,313 megawatt hours per hour on Friday morning from 22,705 megawatt hours per hour on Thursday evening via the Mallnow entry point, according to the Gascade data.

Following the drop, Goldman Sachs lowered its estimated gas storage levels in north-west Europe to 12 billion cubic meters or 23% of capacity by end-March from a previously estimated 32%.

As storages are low, Gazprom needs to either book additional transit volume or buy gas from the market as flexibility from storage withdrawals is not on the table, said Xun Peng, a gas analyst with Refinitiv.

Gazprom had planned to send 5.6 bcm of gas to Europe via its newly-built Nord Stream 2 gas pipeline which is pending operational clearance from German regulators.

Uniper, also Gazprom's financial partner in Nord Stream 2, does not, however, expect an operating licence to be granted quickly, its chief executive said on Friday.

"In the absence of large Nord Stream 2 flows, this scenario of extended restricted Yamal flows could create a squeeze in physical markets this winter," Goldman Sachs said in its note.

(Reporting by Vladimir Soldatkin and Katya Golubkova Additional reporting by Dmitry Antonov in Moscow and Nora Buli in Oslo Editing by Timothy Heritage, Edmund Blair, Kirsten Donovan)

((vladimir.soldatkin@reuters.com; +7 495 775 12 42;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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