While Europe is busy filling gas inventories for the next winter, a key gas pipeline has opened an "annual overhaul", making gas once again a hot commodity in the international market.
Gazprom's previous announcement showed that it would suspend the Nord Stream 1 gas pipeline from July 11 to 21 to deliver natural gas to Germany in order to carry out annual maintenance of the gas transportation system. The shutdown began at 6 a.m. CET on Monday, and the pipeline's natural gas supply dropped to zero in the following hours.
As is customary in previous years, European countries often choose to store gas in advance in the summer for the upcoming winter. This year, the EU plans to increase its natural gas reserves from about half of its current level to 80 percent by November, preparing for winter. According to Gas Infrastructure Europe, the current average filling rate of gas storage facilities in EU countries is 51%.
In mid-June, nord stream 1's gas supply has been cut to 40 percent. Now, "this natural gas pipeline will be shut down for another 10 days, which will not only jeopardize the current gas storage preparations of European countries, but also add fuel to the European gas market that has soared in recent weeks."
According to the official website of the Intercontinental Exchange (ICE), the Dutch gas futures, a TTF benchmark that is regarded as the "weather vane of European gas prices", jumped to a three-month high of 183.18 euros/MWh on July 7, second only to the recent high of 200 euros/MWh that broke through 200 euros/MWh after the Russian-Ukrainian conflict on March 8.
Gazprom will never return?
Unlike Nord Stream 2, which travels to Germany via Russia on the bottom of the Baltic Sea, Nord Stream 1 is a land gas pipeline with a total length of 1224 km. After its completion in 2011, Nord Stream 1 transports 55 billion cubic meters of natural gas to Europe every year.
For the annual maintenance of Nord Stream 1, Nicolas Daher, chief energy analyst at the Economist Intelligence Unit (EIU), is not optimistic. He told CbN that Due to the decline in Russian gas transmissions, the decline in Europe's own production, and the lack of infrastructure construction for the regasification of liquefied natural gas (LNG) in Europe, Europe has been trapped by the reduction of natural gas supply, "so further reduction in gas supply will have a significant impact on Europe."
At present, many European countries are doubting whether the pipeline really needs to be repaired, and they are also worried that Gazprom will not restore gas supply as promised in 10 days. Earlier, French Finance Minister Le Maire said that it is very likely that Russia's gas supply to Europe will be completely interrupted, and France should be prepared for this. Germany is also concerned that If the Nord Stream 1 gas pipeline remains closed after the end of annual maintenance, Germany's gas supply may "collapse".
Dahe told First Finance that in fact, the market has prepared for Russia's "default", that is, the possibility of not restarting the pipeline as planned after 10 days, "so if Russia restarts the pipeline on time and at full capacity, then the price of gas in Europe will fall."
Dahe believes that Nord Stream 1 will not be completely shut down, but the volume of gas transmission may be reduced, "Russia will control prices through the management of production." Russia knows that high oil prices are hurting the EU economy and is likely to continue to play the 'energy card'. ”
"If Russia delays restarting the pipeline, Germany, which is most dependent on Russian gas, will find it difficult to meet its gas storage targets." "If Russia completely shuts down the pipeline for the rest of the year, the German government will find itself in a situation where it has to ration gas consumption, potentially reducing the supply of gas to industry," Dach said. ”
On the Russian side, Kremlin spokesman Peskov previously refuted claims that Russia used oil and gas to exert political pressure. He said that the "Nord Stream No. 1" shutdown was regular and planned, not a maintenance caused by human reasons.
Recession fears in Europe have intensified
In the past month, european gas prices have doubled. More foreign media pointed out that since 2021, the price of natural gas in Europe has soared by about 700%. The gains also exacerbated recessionary fears in the eurozone.
Dahe analyzed the first financial economy that once Gazprom does not resume supply "as promised" after 10 days, then natural gas prices are bound to continue to rise for the rest of the year, which will push many EU members into recession.
Preliminary statistics released by Eurostat on July 1 show that eurozone inflation reached an annualized rate of 8.6% in June, a record high for eight consecutive months. Among them, energy prices rose by 41.9% year-on-year, which is the "culprit" that pushed up this round of inflation.
"Market supply is already so tight that any disruption in the supply chain, such as a strike in Norway or Algeria that leads to a reduction in gas exports, as well as other contingencies, could further drive up the price of gas," Dach believes. However, he also cautioned that "higher natural gas prices in the short term will pull down prices in the long term due to the ensuing recession." ”
Data from European think tanks shows that to this day, Russia remains one of the main sources of gas supply for European countries. According to the latest statistics from Brussels-based think tank Bruegel, about 1.6 billion cubic meters of natural gas are currently imported from Russia every week in the EU, which is equivalent to one-fifth of all EU imports. Nord Stream 1 is currently the most important pipeline for Russia to deliver natural gas to Europe. Gazprom recently transported 75 percent of the total natural gas it ships to Europe through this pipeline: about 1.2 billion cubic meters of gas per week.
Of course, Europe is also stepping up to anchor gas sources in global markets other than Russia. For example, Africa, which already has three gas pipelines connected to the European continent. However, according to the Global Energy Monitoring Report 2021 released last June, Africa's gas industry is facing the dilemma of outdated infrastructure and unstable political instability that cannot be delivered. Although the United States has vigorously developed LNG in recent years, it is difficult to mass-produce on the one hand, and on the other hand, Europe also lacks the infrastructure to convert LNG.
Although in recent months, under the repeated sanctions of the United States and Europe, Russia has introduced a ruble settlement gas trading mechanism to counter it, and has suspended or suspended gas exports to 12 EU countries, resulting in a contraction in Russian gas exports, but rising prices are enough for Russian exporters to get higher returns with lower sales volumes. The Russian government therefore plans to impose a one-time profiteering tax of 1.25 trillion rubles (about $22.2 billion) on Gazprom.
According to analysis by the Center for Research on Energy and Clean Air, a research institute in Helsinki, Finland, Russia had generated a record €93 billion in revenue from oil, gas and coal exports in the first 100 days of the Russian-Ukrainian conflict, with about two-thirds of it coming from oil and most of the rest coming from natural gas.
At present, in the seventh round of sanctions under negotiation, the United States and Europe plan to jointly "limit" Russia's oil and gas resources, that is, start with "insurance" and impose restrictions on shipping and insurance services engaged in the transportation of Russian oil and gas resources.
However, Dach is not optimistic about this move. "On the one hand, the G7 has not yet revealed how it will limit the price of fossil fuels in Russia," he said, "on the other hand, without the full support of Russia's major oil and gas buyers, such a policy will obviously be difficult to achieve." ”