Gazprom signals no change in gas flows to Europe

By Tom Marzec-Manser, ICIS

illustration: ICIS

Wholesale natural gas prices across Europe rallied on Monday morning, 18 October, as bookings for pipeline access for November showed Russia’s Gazprom expects to leave flows unchanged into western Europe next month.

The European benchmark price, the front-month TTF, was dealing at EUR 107/MWh, up 20% by late morning, relative to Friday’s close. By 12:00 London time it had slipped back to EUR 103/MWh.

Friday’s trading session was the weakest day on record for the front-month TTF, ICIS data showed, with the contract falling EUR 12.375/MWh relative to Thursday’s session to finish at EUR 88.825/MWh. Comments from Russian President Vladimir Putin had provided some weakness to the gas market since he spoke about additional supply on 6 October.

ICIS TFF front-month contract (source: ICIS)
ICIS TFF front-month contract (source: ICIS)

But while the downside continued in the opening hours of Monday’s trade, the market reversed higher around 09:30 following confirmation that one string of the new Nord Stream 2 pipeline had been pressurised with technical gas and was now ready for commercial flows.

This development raised the risk that not as much capacity would be booked via auctions via Poland and Ukraine, as Gazprom would want to prioritise throughput on its new asset, rather than pay for additional capacity.

German approval to operate Nord Stream 2 has yet to be given by the country’s energy regulator, although it expected to hear from the energy ministry on a governmental assessment – and that of neighbouring countries – in the coming days.

Once Germany’s regulator reaches a verdict on Nord Stream 2 the decision then needs to head to the European Commission. Whether or not Gazprom would wait for all the official approvals is unclear.

Flows crash in October
Having been volatile since late July, Russian flows of gas into western Europe via Poland crashed at the start of October. Net flows via the three main routes into western Europe fell to a 261 million cubic metre (mcm)/day average rate in October, having been at a 302 mcm/day average rate during September.

If all existing routes were fully maximised then western European flows would be closer to 360 mcm/day, according to ICIS calculations.

Russian Gazprom flows into Western Europe (Germany and Slovakia) (source: ICIS)
Russian Gazprom flows into Western Europe (Germany and Slovakia) (source: ICIS)

Gazprom supplies western Europe via its existing Nord Stream 1 pipeline, via Poland – along a pipe called Yamal-Europe that enters Germany at Mallnow – and via Ukrainian transit through to the Slovak border point of Velke Kapusany.

As it owns the asset, Gazprom does not need to book capacity via Nord Stream 1. Via Poland and into Germany it needs to book all the capacity it might need.

Via Ukraine, Gazprom already has close to 110 mcm/day of capacity under a 5-year agreement. Currently it is only flowing 85 mcm/day, with the bulk being delivered onward to Slovakia. But Gazprom can also book an additional 15 mcm/day via Ukraine if it is using the entirety of the 110 mcm/day.

For November, Gazprom booked just 30 mcm/day of a possible 87 mcm/day offered for Mallnow flows on Monday. Via Ukraine no additional capacity was booked. The results were identical to those for October access, when these were auctioned in September.

Gazprom storage in Russia and the EU
Along with the comments from Putin, market expectation regarding an increase in flows from November onward were driven by an anticipation that once storage injections within Russia finished, Gazprom might re-orientate spare production capacity to western Europe. Storage injections within Russian end on 1 November.

Any spare gas delivered into western Europe does not necessarily need to be sold onto the European spot gas market. It could end-up being delivered to customers that have long-term contracts with Gazprom or be injected into the Russian exporter’s facilities that are situated within the EU.

Currently these storage units are the emptiest in Europe, and the primary cause that overall European storages have begun their net withdrawal season around 18% less full than the 4-year average.

ICIS calculates that storage units within the EU affiliated to Gazprom currently hold just 3.7 billion cubic metres (bcm), whereas the 4-year average for them is to contain 12.6 bcm.

Tom Marzec-Manser, ICISTom Marzec-Manser is Lead Analyst – European Gas/LNG at ICIS who specialises in global LNG demand and Europe’s traded natural gas hubs. He works on the LNG Edge platform which provides pre-trade analysis to market participants.