European gas prices climb as Russia fails to boost supply

Anna Shiryaevskaya, Vanessa Dezem and Jesper Starn 11/8/2021

(Bloomberg) - European gas and power prices surged on signs Russia won’t deliver the boost in supplies President Vladimir Putin promised. At least not on Monday.

Benchmark gas futures traded in the Netherlands surged as much as 9.7% as orders via a key Russian pipeline signaled shipments will remain well below normal on Monday. To make matters worse, gas was flowing eastward from Germany to Poland early in the morning, the reverse of the normal direction. Power contracts were also up, with concerns there won’t be enough fuel to feed thermal plants in winter.

Europe’s biggest supplier of the fuel had promised to send more gas to the region starting Monday, with Putin ordering Gazprom PJSC to fill its European storage sites following the completion of Russia’s domestic stockpiling campaign. Instead, the company said it won’t sell any spot fuel via its sales platform this week and there was also no extra capacity booked to send more supplies to Europe on Monday in auctions over the weekend.

“It’s disappointing as the gas market needs more supplies,” said Niek van Kouteren, a senior trader at Dutch energy company PZEM. “If Russia doesn’t increase flows, we might see prices climbing further.”

European gas prices have more than tripled this year as Russia kept supplies capped just as liquefied natural gas cargoes were being diverted to Asia. Moscow has repeatedly said it can supply more of the fuel to Europe via its controversial Nord Stream 2 link, and has been putting pressure on the continent to approve flows through the 1,200-kilometer pipeline.

Benchmark European gas futures rose as much as 9.7% and were trading 4.8% higher at 77.47 euros a megawatt-hour by 11:48 a.m. in Amsterdam. The equivalent U.K. contract gained 3.6% to 198.35 pence a therm.

German power for the first quarter of next year added as much as 6.9% to 166.50 euros per megawatt-hours, while the contract for December added as much as 5.8%, also reaching 166.50 euros. Carbon increased 1.7% to 60.37 euros per metric ton.

German gas orders via the Yamal-Europe pipeline for delivery into the Mallnow compressor station were still a fraction of normal levels on Monday. Over the weekend, Gazprom didn’t book any space at the Sudzha and Sokhranovka entry points on the border between Russia and Ukraine. No extra capacity was booked either for the Mallnow station in Germany.

The Kremlin doesn’t see Gazprom violating Putin’s order to focus on refilling European inventories from Nov. 8, spokesman Dmitry Peskov told reporters.

“It’s up to Gazprom to make decisions on day-to-day gas deliveries to Europe,” Peskov said.

Europe started the heating season with the lowest inventories in more than a decade. Traders have been awaiting more Russian gas because of mounting concerns that there won’t be enough to meet demand if the winter is bitterly cold.

Unplanned outages have also curbed gas flows to Europe. Works at the Elgin-Franklin field in the U.K. are set from Wednesday until Friday, according to its operator, a unit of TotalEnergies SE. Maintenance at the Skarv field in Norway, which began Thursday, will also continue into this week, according to network operator Gassco.

Meanwhile, demand is set to increase. Temperatures in Northwest Europe have been below normal over the past couple of days, and forecasters expect the weather to turn even colder next week.

Some traders, however, still see the possibility that Moscow could start sending more gas to Europe in the next couple of days.

“Perhaps they need a day to divert flows to export, and we should wait for signs of what happens on Tuesday before completely losing faith,” said James Huckstepp, an analyst at S&P Global Platts

Even if Russia increases gas flows to the continent, the precise volumes are unknown as Gazprom’s export capacity will be limited until it books additional Polish or Ukrainian transit space, according to Huckstepp.

“Russian supplies might remain low until the startup of Nord Stream 2,” he said.

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