Gas prices set to soar again on Monday after Russia shuts off Nord Stream supply pipeline

1,200 km gas link was due to reopen on Saturday

Joe Middleton
Sunday 04 September 2022 22:10 BST
Nord Stream 1: Russia indefinitely suspends Gazprom pipeline flow to Europe
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Gas prices are set to soar further when the markets open on Monday after Russia confirmed that the Nord Stream 1 pipeline would remain shut indefinitely.

The 1,200km (745 miles) gas link runs from under the Baltic Sea near St Petersburg to northeastern Germany and was due to reopen on Saturday after undergoing several days of maintenance work.

However, state-controlled Gazprom said it had discovered “oil leaks” in a turbine during maintenance. It did not give any timescale on when the pipeline would reopen. Although Siemens Energy– which usually services the turbines – said such a leak should not prevent operation.

The pipeline historically supplied around a third of the gas exported from Russia to Europe, but was already running at just 20 per cent of capacity before flows were halted last week for maintenance.

Skyrocketing energy costs linked to surging gas prices have already caused many energy-intensive industries to scale back production, and led European governments to pump billions into schemes to help households stay afloat.

The latest setback will leave European countries scrambling to find other energy sources and raises the prospect of energy rationing this winter.

Prices will surge again, analysts think, after the Kremlin-backed energy giant confirmed the pipeline will remain inactive.

“On Friday... the market was already pricing in NordStream 1 (NS1) flows coming back,” Energy Aspects gas analyst Leon Izbicki said. “We expect a significantly stronger open for the TTF on Monday.”

The TTF, Title Transfer Facility, is a virtual trading point for natural gas.

The impact of the latest cut would depend on Europe’s ability to attract gas from other sources, Jacob Mandel, senior associate for commodities at Aurora Energy Research, said.

“Supply is hard to come by, and it becomes harder and harder to replace every bit of gas that doesn’t come from Russia,” he said.

German chancellor Olaf Scholz said on Sunday his country had been preparing for a total halt in gas deliveries from Russia.

Germany, Europe’s largest consumer of gas, is at phase two of a three-stage emergency plan to deal with lower supply. A move to stage three would see some industry gas rationing.

Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in their countries. Finland is aiming to offer €10bn and Sweden plans to offer €250bn.

Following Russia’s invasion of Ukraine, Europe rapidly launched plans to cut its dependence on Russian fuels, switching to alternative suppliers of gas and other fuels and pushing for faster deployment of clean energy supplies.

Germany has begun developing liquefied natural gas (LNG) terminals to enable it to receive gas from global suppliers and move away from Russian gas imports.

“There’s plenty of scope to replace that [Russian] gas with LNG imports for now, but when the weather turns cold and demand starts to pick up in the winter in Europe and Asia, there’s only so much LNG out there that Europe can import,” Mr Mandel said.

Europe last week met a target to fill its gas stocks by 80 per cent by ealry November. EU stocks are currently 81 per cent full, according to Gas Infrastructure Europe data, with Germany’s stores at 85 per cent full.

Russian gas is still currently flowing to Europe through pipelines via Ukraine, but speculation is now mounting over whether that too could be halted.

“We’re shifting focus to the [gas] ... that continues to flow to Europe through Ukraine,” James Huckstepp, EMEA gas analyst at S&P Global Platts, said in a Twitter post. “Only a matter of time...”

Additional reporting by Reuters

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