Gas Flows to Europe Still Low After Gazprom Fire

A week after a fire at a Gazprom condensate treatment plant, flows of Russian gas to Europe via the Yamal-Europe pipeline remain low and European gas prices remain high. By midday on Thursday flows on Yamal-Europe were running around 870,000 cubic meters per hour, according to gas transmission data. On Wednesday, Yamal-Europe -- which traverses Poland -- shipped only 21.1 million cubic meters, or an average of 880,000 cubic meters per hour. That was even lower than the 34 million to 37 million cubic meters per day shipped during the previous six days after the fire broke out at the Urengoi condensate plant on Aug. 5. Before the fire, Yamal-Europe had been supplying around 50 million cubic meters per day since late July, when Gazprom slashed flows by around 40% from almost 84 million cubic meters per day. Gazprom Denies Supply Squeeze The fire and the subsequent reduction in the gas volumes carried by the Yamal-Europe pipeline have kept European gas prices at elevated levels. Spot prices at the Dutch TTF hub were at $14.7 per million Btu ($525/Mcm) as of Monday, Energy Intelligence calculates, while forward contracts for September delivery traded close to $570/Mcm on Wednesday. The fire has added to upward pressure on European spot prices, which had already been pushed higher by low storage volumes, limited LNG supplies and Gazprom's decision not to book additional pipeline transit capacity via Ukraine. Some have suggested that Gazprom has deliberately restricted gas supplies to Europe to keep prices high, and perhaps to make the case that the new Nord Stream 2 gas pipeline will strengthen security of supply in Europe. Opponents of Nord Stream 2 have long argued the opposite -- that the new pipeline will weaken the region's energy security by making it more dependent on Russian gas. The Russian gas giant has denied engaging in such shenanigans and emphasized that it has continued to meet all of its contractual supply obligations (IOD Aug.2'21). Uniper CEO Weighs In Klaus-Dieter Maubach, CEO of German electricity and natural gas supplier Uniper, offered his take on the situation on Wednesday, suggesting that the start-up of Nord Stream 2, targeted in the fourth quarter of this year, "may help to ease the current tightness on the gas markets." Germany will be the main market for the gas carried by Nord Stream 2, which runs under the Baltic Sea and bypasses transit countries Poland and Ukraine. Furthermore, Uniper is one of five European energy companies that took part in financing the €9.5 billion ($11 billion) gas pipeline project, which has a capacity of 55 billion cubic meters per year. The Politics of Nord Stream 2 The US has opposed the Nord Stream 2 project, but the Biden administration issued sanctions waivers earlier this year that facilitated work to complete the project. The US and Germany subsequently agreed that they would take retaliatory measures against Russia if it were to use energy as a weapon. And the Biden administration has since appointed seasoned energy diplomat Amos Hochstein as a senior adviser for energy security. He is initially expected to focus on issues related to Nord Stream 2 (IOD Aug.10'21). "The last few weeks were good weeks for Nord Stream, but I would not say that the risk is completely eliminated,” Uniper's Maubach said during a conference call with analysts and investors. He added that Germany's federal election in late September "will have an influence on the question of what happens next." Gazprom Taps European Storage Some analysts have suggested that Gazprom could ramp up its gas export volumes fairly quickly again after the Urengoi fire by producing more "dry" gas that is not condensate-rich and by injecting less gas into domestic storage. But Gazprom does not appear to be doing so -- at least for the time being. Instead Gazprom seems to have opted to withdraw gas from European storage facilities to fulfill its supply obligations as long as Yamal-Europe gas flows remain low. However, that could leave Europe short of gas for the winter heating season. Gazprom has been withdrawing around 15 million to 16 million cubic meters a day from its Rehden storage facility in Germany since Aug. 7, and withdrew 24 million cubic meters a day from the Katharina facility, also in Germany, on Wednesday and Thursday of this week, storage data show. Europe's gas storage facilities were only 60% full as of Tuesday, down from 88% at the same time of last year, according to data from Gas Infrastructure Europe. Vitaly Sokolov, Moscow