Russia’s NS1 Cuts Leave Europe Tight on Natural Gas, Likely Short of Storage Goals - Natural Gas Intelligence

2022-07-29 21:55:32 By : Mr. Alidy Woo

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Further cuts of Russian natural gas pipeline volumes to Europe could be casting shadow on the European Union’s (EU) ambitious winter storage goals as governments on the continent warn of impending shortfalls.

Russia’s Gazprom PJSC cut natural gas deliveries on Nord Stream 1 (NS1) to 20% of capacity Wednesday, blaming overdo maintenance on turbines feeding the line. Deliveries have been reduced since last month. 

European Union members have previously raised concerns that any reduction to volumes could threaten the goal of filling natural gas storage inventories to 80% of capacity by November.

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Germany’s Federal Network Agency (FNA), which regulates the gas market, reported Wednesday that NS1 flows were down to 19.5% of the pipeline’s capacity. Representatives said gas was still being injected into the country’s storage facilities, but wholesale prices had jumped to the highest levels since March.

“If Russian gas supplies via the Nord Stream 1 pipeline persist at this low level, it will hardly be possible to achieve a storage level of 95% by November without additional measures,” FNA said of Germany’s energy targets. “The reduction is also affecting the transfer of gas to other European countries such as France, Austria and the Czech Republic.”

Germany has been under the “alert phase” of its emergency gas conservation plan since late June.

Consultancy Aurora Energy Research reported the EU collectively was as much as 3 billion cubic meters (Bcm), or about 106 Bcf, ahead of its Sept. 1 preliminary goal when reported Russian gas imports began to drop Wednesday.

Europe has also been experiencing increased power demand and impacts to generation that have cut into some of its previous progress on gas storage. Rystad Energy’s Fabian Rønningen, power market analyst, attributed some issues to coal power plant outages and reduced hydroelectric power from a heat wave in Europe. Germany’s storage levels have been rising since last week, when NS1 resumed flowing. Germany’s network regulator said inventories were at nearly 67% on Wednesday.

The EU has secured agreements for cooperation on liquefied natural gas and gas field development with Israel, Egypt and Azerbaijan to raise future gas supplies. Member states have also ordered regasification units to increase LNG import capacity, but relief could be years away.

In the meantime,energy trading firm Energie Danmark reported the increase in gas market prices could be reflecting the struggles buyers on the continent may face “as competition from Asia rises” for LNG.

Rice University’s Anna Mikulska of the Baker Institute for Public Policy, told NGI production outages and LNG competition mostly leaves EU cooperation as one of the few lifelines left on the continent. However, she said member solidarity is already being tested as some countries eschew imposed policies.

The EU’s storage strategy also holds a framework for member states to potentially tap shared storage in the event of an energy emergency, but Mikulska said it is still unclear which body holds authority to enforce provisions.

Poland, which has existing mandates on natural gas storage, was joined by Greece, Italy, Portugal and Spain in initially dissenting to a draft proposal of an emergency storage plan. Poland’s Anna Moskwa, minister of climate and the environment, reportedly said this week the country “cannot accept any decisions that are imposed on countries,” as a matter of security. “When push comes to shove, if it is a very cold winter, your population is already strained for gas and your neighbor is asking for more, it will be interesting to see whether a government would be compelled to share,” Mikulska said. “I am not sure the solidarity will prevail.”

If Europe isn’t able to bridge the Russian supply gap with additional imports, it could use demand destruction strategies to make its stored gas last. EU members certified an agreement Tuesday to voluntarily reduce winter gas demand by around 45 Bcm, about 15% of forecast demand between August and the end of next March.

The current gas supply situation has caused European manufacturers to react. Germany’s BASF SE, the world’s largest chemical maker, is further curtailing production of ammonia in response to soaring natural gas prices and dwindling supplies. BASF representatives told news media that prices for fertilizer, of which ammonia is a key component, could be impacted.

EU member states have agreed to prioritize reduction measures to exclude most “protected customers.” That would mean ensuring residences and essential services aren’t impacted by energy conservation.

Kpler’s Laura Page, senior LNG analyst, told NGI the plan as it stands could be “very challenging” in the face of a cold winter and would likely need coordinated action.

“Member states have until the end of September to update their national emergency plans, so we should hear more about specific measures then, but for this to be achievable, I think this is going to have to involve all major gas consuming sectors,” Page said.

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Natural gas futures fluctuated again Friday but ultimately forged ahead as weather forecasts pointed to above-average cooling demand in August. The September Nymex gas futures contract gained 9.5 cents day/day and settled at $8.229/MMBtu. It had shed 42.0 cents in its debut as the prompt month a day earlier, when price swings also defined trading.…

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