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EU Gas Prices Slump on Nord Stream 2 Speculation

Copyright © 2021 Energy Intelligence Group

European natural gas prices slumped over €7 from record highs earlier this week following speculation over the start of operations of the controversial Nord Stream 2 pipeline. European gas prices have been on an unprecedented bullish rally as the region has been extremely short of gas during an extended period of strong gas demand (LNGI Jul.2'21). A cold start of the year left storage facilities depleted at historic lows while piped supplies from Russia and Norway have remained constrained, and LNG has been diverted to the higher-paying Asian market (LNGI Aug.17'21). Two Hits The first hit to European gas prices followed the publishing of physical flow data through the Lubmin II interconnection point, where the Nord Stream 2 pipeline makes landfall in Germany, suggesting to the market that the Nord Stream 2 pipeline was ready to be operational. The gas flow data was revealed to be an error, but gas prices ended the day trading almost €4 below record-high levels reached on Monday (LNGI Aug.17'21). The market sank a further €3 on Thursday following a Gazprom statement saying that soon-to-be completed Nord Stream 2 pipeline project is expected to flow 5.6 billion cubic meters this year. The project expects to flow 55 Bcm/yr of gas through an undersea link between Russia and Germany once operational. The pipeline is opposed by the US and the EU as consolidating Russia's dominance of Europe’s gas supplies, as well as arguing that it deprives Ukraine and Poland of crucial gas transit revenues. The month-ahead September contract on the Dutch TTF hub, Europe’s de facto benchmark, settled at €44 per megawatt hour ($15.19 per million Btu) on Aug. 18, almost €4 from a record high of €47.95/MWh on Aug. 16 and €47.10/MWh on Aug. 17. On Aug. 19, the TTF month-ahead settled at €40.40/MWh by market close. Russian Flow Uncertainty The uncertainty over supplies has made the European gas market extremely volatile, as exemplified by the wild price moves this week. Gazprom, Europe’s main gas supplier, has been reluctant to book additional pipe capacity through a pipeline transit route via Ukraine to cover the European supply deficit and has focused on just fulfilling its European customer obligations (LNGI Aug.16'21). The market has been unable to explain fully why Gazprom has taken this position. Some believe it is a sales strategy to support prices after a rough 2020 while others believe that there could be upstream constraints. There is also a line of thinking that Gazprom is putting pressure on Europe to reconsider putting any regulatory obstacles to the start of Nord Stream 2. Two Hits -- Details On Wednesday, German gas transmission systems operator Gascade reported physical flows of some 31 MWh per hour (71 million cubic meters per day) through the Lubmin II interconnection point on the afternoon of Aug. 18. European gas traders took this to believe that flow testing was taking place, meaning that Nord Stream 2 was ready to start operations sooner than expected, potentially relieving a current gas supply deficit in Europe. A Gascade spokesman tells Energy Intelligence the reported flows were a mistake in their system and there were no flows through Nord Stream 2. The second blow came via a Gazprom statement on Thursday saying that it plans to ship 5.6 Bcm through Nord Stream 2 this year. In order to do so, the company would have to start flowing gas through the pipe no later than the middle of October. Last Steps A spokesperson for Nord Stream 2 AG, the project's Switzerland-based developer, said over 99% of the pipeline has been laid and the company will inform of the pipe’s completion “in due time.” Media reports were saying the pipe could be finished by Aug. 23. The pipe’s start of operations is still dependent on a technical certification by independent experts and a German federal certification that Nord Stream 2 AG can act as an independent transmission systems operator (LNGI Jul.22'21). German Chancellor Angela Merkel and Russian President Vladimir Putin are scheduled to meet in Moscow on Friday. Jaime Concha, Copenhagen

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