Energy

Europe's missteps stoke gas price, says Russia, as fuel flows east

A worker adjusts a pipeline valve at the Gazprom PJSC Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust-Luga, Russia, on Thursday, Jan. 28, 2021. Nord Stream 2 is a 1,230-kilometer (764-mile) gas pipeline that will double the capacity of the existing undersea route from Russian fields to Europe — the original Nord Stream — which opened in 2011.
Andrey Rudakov | Bloomberg | Getty Images

Europe is paying record gas prices because of its failure to sign long-term supply contracts and could ease the pressure by ending delays to the Nord Stream 2 gas pipeline that runs from Russia to Germany, a top Russian official said on Friday.

Europe's benchmark gas price climbed to a new record on Tuesday, up almost 800% since the start of the year. The price eased on Friday but it was still up more than 400%.

Adding to the squeeze, the Yamal-Europe pipeline that usually sends Russian gas to Western Europe was flowing in reverse for a fourth day on Friday, pumping fuel from Germany to Poland, data from German network operator Gascade showed.

Russia said the flow reversal was not a political move, although it comes amid rising tension between Moscow and the West over Ukraine and a long-running dispute over Nord Stream 2, which has been built but has yet to start commercial operations.

The project is opposed by the United States and particularly several east European states, which say the pipeline will make the European Union even more reliant on Russian gas, which already supplies 35% of European Union's gas needs.

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In Ukraine, another transit route for Russian gas to Europe, the head of state gas transmission operator said Russia's Gazprom had reduced daily gas transit across Ukrainian territory to 87.7 million cubic metres (mcm) from 109 mcm.

"The reduction in gas supplies to the European Union at a time when prices reached $2,000 suggests that these are not economic decisions but purely political ones, aimed at increasing pressure on the EU to launch Nord Stream 2 on terms of the Russian Federation," Sergiy Makogon wrote on Facebook.

The benchmark European gas price soared above 2,200 euros ($2,495) per 1,000 cubic metres on Tuesday.

Makogon said Europe had set a record for extracting gas from storage because of supply shortages.

Russia has repeatedly dismissed charges it has played politics over gas and says it is meeting all the amounts it is contracted to supply. Companies with supply deals have also said their contracts have been met. 

Russian Deputy Prime Minister Alexander Novak said Europe was missing out on additional Russian supplies because of delays to Nord Stream 2, which still needs German approval to start up.

Red-hot

"To my mind, European consumers are very interested in the project to start working, while the companies, which participate in it, they could have submitted additional requests as part of long-term relations on gas supplies via this new gas pipeline," Novak told Russian state TV channel Rossiya-24. 

He also said European leaders had made mistakes in reducing the use of long-term supply deals in favor of the spot market, where prices are more volatile.

"The countries, which receive gas via the long-term deals, they receive it much cheaper," Novak said.

Europe's red-hot gas market could find some relief from redirected cargoes of liquefied natural gas (LNG) from Asia as European prices make this diversion attractive. 

Gazprom, which has a monopoly on Russia gas exports by pipeline, has not booked gas transit capacity for exports via the Yamal-Europe pipeline for Dec. 24, auction results showed on Friday.

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Gascade's data on the Yamal-Europe pipelines showed flows at the Mallnow metering point on the German-Polish border going east from Germany into Poland at an hourly volume of around 1,218,000 kilowatt hours (kWh/h) on Friday and were expected to stay at these levels during the day.

Data from Slovak pipeline operator Eustream showed capacity nominations for Friday's Russian gas flows from Ukraine to Slovakia via the Velke Kapusany border point were at 739,843 MWh, down from Thursday's 785,160 MWh.

That drop was being balanced by higher nominations for flows from the Czech Republic to Slovakia, meaning nominations for flows from Slovakia to the Austrian hub Baumgarten were roughly stable compared with the previous day.