Wholesale gas prices ease in Europe as Russian gas flows resume

Wholesale gas prices fell in Europe on Tuesday after Russian gas flows resumed to Germany, raising hopes that Moscow is carrying out a pledge to increase supplies and ease concerns about shortages and high prices before winter.

Russia started pumping gas to Germany again late on Monday via a pipeline from Yamal in Siberia, a day after a halt in exports had pushed up prices in Europe. The gas flows later rose to their highest level in almost two weeks, German data showed.

Russia provides a third of Europe’s gas and its supply intentions are critical at a time when a surge in spot prices has hit households and businesses alike in Europe, underlining Europe’s heavy dependence on Moscow for its energy supplies.

Russian President Vladimir Putin ordered state gas company Gazprom (GAZP.MM) this month to increase supplies to Europe and rebuild its inventories there once domestic storage tanks are replenished.

In a sign, it is starting to carry out that order, Gazprom said on Tuesday it had begun pumping gas to five European underground gas storages for November.

Though wholesale prices in European Union countries and Britain fell, market analysts said a bigger drop in prices would depend on Russia doing more to ease European concerns, and on how cold the coming winter is.

“So, until those concerns go away, prices will stay high,” Trevor Sikorski, an analyst at consultancy Energy Aspects, said by email.

Dmitry Marinchenko, senior director at Fitch rating agency, said Gazprom would need to pump around 170 million cubic meters (mcm) more of gas each day for a month – an increase of about a third on what it is shipping now – to get its European storage refilled.

“For such a serious increase in supplies, Gazprom would have to book additional transit capacity via Ukraine – the Nord Stream 1 and Yamal-Europe (pipelines) would not be enough,” Marinchenko told Reuters.

An official with the Ukrainian gas transmission system said Gazprom had made a request to ship 100.2 mcm per day via Ukraine. That is less than the 110 mcm per day it has already paid for but more than the shipments of 56-64 mcm per day seen at the start of November.

If Gazprom wants to go over the contracted volumes, it must book additional capacity at auctions separately via Ukraine and for the Yamal-Europe pipeline. It has refrained from doing so at recent auctions.

Russia has denied withholding supplies to Europe to exert pressure on German regulators to approve gas shipments through the new Nord Stream 2 gas pipeline beneath the Baltic Sea. Germany has until early January to certify the pipeline.

IMPACT OF HIGHER PRICES

Gas prices have risen this year because of factors including low gas inventories and an increased demand following the economic recovery since the easing of COVID-19 lockdowns, as well as tighter-than-usual supplies from Russia.

In Britain, some energy companies have gone bust, consumers face much higher energy bills and companies in many sectors including food production and agriculture have felt the pain.

Westbound flows into Germany at the Mallow metering point on Poland’s border resumed late on Monday at an hourly volume of more than 3 million kilowatt-hours (kWh).

The volume was around 9 million kWh/hour on Tuesday, the highest level since Oct. 29.

Renominations – or requests to transport gas – into Germany for Tuesday stood at 9,742,667 kWh/hour. Exit requests to send gas into Poland were much lower at 1,013,000 kWh/hour, the data showed.

The levels of the flows and their direction on the Yamal-Europe pipeline are managed according to customers’ requests, and there were reverse flows last week, meaning gas flowed into Poland from Germany. There were zero net flows for most of Monday.

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