European Gas Prices Rise on Supply Uncertainty

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European natural gas prices moved higher on Monday amid renewed uncertainty about how much Russian gas will be available this winter.

On Monday Russia's state-run pipeline gas exporter Gazprom decided not to book any transport capacity on the 33 billion cubic meter per year Yamal-Europe gas pipeline, which runs west from Russia through Belarus and Poland.

This happened just a few days after President Alexander Lukashenko of Belarus threatened to cut off gas supplies to Europe in response to the potential expansion of EU sanctions against the former Soviet republic.

Gazprom also opted not to book any additional transit capacity via the Ukraine pipeline route, beyond its existing contractual transit flows on that route.

Russian President Vladimir Putin indicated in a television interview that Lukashenko's threat had taken him by surprise and said he hoped it would not be implemented, but he acknowledged that Lukashenko could "theoretically" halt the flow of gas.

Brussels has accused the autocratic Lukashenko of manufacturing a crisis by flying in refugees from the Middle East and Africa and transporting them to the borders of Poland, Lithuania and Latvia — all of which belong to the EU.

EU Broadens Sanctions

On Monday the EU broadened its sanctions against Belarus, which it accuses of taking advantage of migrants for political purposes. The new sanctions will target individuals and entities, including airlines and travel agencies.

Many in Europe suspect Russia — Belarus' main political ally — of being behind the migrant crisis on the EU's borders.

Russia has already been accused of using its gas as a “weapon” against European countries, many of which are highly dependent on Russian gas.

But most pundits agree Lukashenko is unlikely to halt gas transit via Yamal-Europe without Moscow's consent. Russian state-controlled gas giant Gazprom controls the section of Yamal-Europe that runs through Belarus.

Supply Concerns Rekindled

Gazprom's decision not to book additional December capacity on the Ukraine export route and any capacity at all on Yamal-Europe at auctions on Monday led to renewed concerns that the region will face tight gas supplies this winter.

Russian gas flows to Europe had started to rise last week after Putin asked Gazprom to help replenish depleted European storage volumes. This was a contributing factor as near-term European gas prices fell to their lowest levels in months.

But by not booking new pipeline capacity for December on the transit routes through Poland and Ukraine, Gazprom has rekindled uncertainty about how much Russian gas will be supplied to Europe in the coming months.

The month-ahead gas contract at the Dutch TTF, Europe's de facto benchmark gas hub, fell to €64.85 per megawatt hour ($22 per million Btu) on Oct. 29 after Putin's initial remarks about sending more gas to Europe.

That was down from a high of €116/MWh in early October. But by end of the day on Monday, Nov. 15, the contract was trading at around €80.30/MWh, up about €4 from Friday, Nov 12 on news that Gazprom did not book additional capacity at auction.

Gazprom's restricted gas flows via Ukraine and Belarus/Poland are seen by many as an attempt to secure faster approval for its new 55 Bcm/yr Nord Stream 2 pipeline to start operations.

Russia and Gazprom insist that there are no such ulterior motives, with the company saying it has met its contractual obligations and satisfied European gas demand.

Flows through the Polish section of Yamal-Europe fell to around 24 million cubic meters per day over the weekend, below the 31 MMcm/d of booked capacity for November and a fraction of the nearly 90 MMcm/d of available capacity.

Gazprom says that since the start of this year, it has exported 164.8 Bcm of gas to Europe (including Turkey) and China — up 8.3% from the same period of 2020.

But if those numbers are adjusted for strong growth of exports to China, supplies to Europe have not grown significantly from last year's low levels.

Putin Taken by Surprise

In the television interview Putin said a move by Belarus to halt gas flows "would do more damage to Europe's energy sector and would not contribute to the development of our relations with Belarus as a transit country."

Putin said Lukashenko had not given him advance notice of the threat and said he planned to talk to him about it. His spokesman said on Monday that the two men had since talked but he did not disclose details of their discussions.

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