Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Explainer: Why Russia drives European and British gas prices

Stock Markets Jun 17, 2022 22:30
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/Files 2/2

By Susanna Twidale

LONDON (Reuters) - Benchmark European and British gas prices are on course for gains of more than 50% this week after Russia said capacity of its Nord Stream 1 pipeline, which take gas directly to Germany, would be cut by around 60%, dramatically reducing European gas supply.

Below are some of the factors explaining the impact of Russian supplies on Europe's gas markets, even those that do not rely on Russian gas directly.

HOW MUCH GAS DOES RUSSIA SUPPLY?

Europe has historically relied on Russia for around 40% of its natural gas, most delivered through pipelines including Yamal, which crosses Belarus and Poland to Germany, Nord Stream 1, which runs directly to Germany, and pipelines through Ukraine.

A network of interconnecting pipelines links Europe’s internal gas markets.

Not all countries get gas directly from Russia, but if countries such as Germany, Europe's top buyer of Russian gas, receive less, they must fill the gap elsewhere, for instance Norway, which has a knock-on effect on available gas for other countries.

As a result, changes in Russian supplies can cause as much gas price volatility in Britain as the rest of Europe, even though Britain typically gets less than 4% of its gas from Russia. Lower Russian supply means less could be available from its largest supplier Norway.

WHAT IS HAPPENING NOW?

Russia already began reducing flows to Europe in the second half of 2021, with flows through the three main pipeline routes down around 20% compared with the second half of 2020.

EU gas supply from Russia https://fingfx.thomsonreuters.com/gfx/ce/dwvkrmaqrpm/Pasted%20image%201655462750418.png

European gas prices soared in 2021, as supply failed to keep pace with demand driven by the recovery from the coronavirus pandemic.

Despite lower flows, Russian state-owned gas monopoly Gazprom (MCX:GAZP) said it was fulfilling all its long-term contracts, and European companies contacted by Reuters last year confirmed contractual obligations had been met.

That changed after Russia’s invasion of Ukraine, an action Moscow called a "special operation."

This year Moscow has already cut gas flows to Bulgaria, Poland, Finland, Danish supplier Orsted, Dutch firm Gasterra and Shell (LON:RDSa) for its German contracts, after they all rejected a Kremlin demand to switch to payments in roubles – a move in response to European sanctions.

Several companies such as Germany’s Uniper and RWE and Italy’s Eni made payments under Russia’s new scheme and continued to receive gas.

But many companies, including Uniper and RWE have now seen their supply curbed after Russia cut the capacity of the Nord Stream 1 pipeline.

While Italian Prime Minister Mario Draghi accused Moscow of using its gas supplies for political reasons, Russia said supply reductions were necessary because of the delayed return of equipment that had been sent for repair.

Gas flows from Russia through the three main pipelines have plummeted 26% in June compared with May to an average of around 1,771 gigawatt hours a day (GWh/d), Refinitiv Eikon data showed.

The Nord Stream cut has sent European and British gas prices spiralling.

British and Dutch front month gas prices https://fingfx.thomsonreuters.com/gfx/ce/egpbkgmqzvq/Pasted%20image%201655462465211.png

WHAT ABOUT THE ALTERNATIVES?

The European Union aims to end reliance on Russian fossil fuels by 2027 and has begun looking for alternatives, such as by increasing imports of global liquefied natural gas (LNG).

LNG imports rose about 58% in the first five months of 2022 compared with 2021 levels, Refinitiv data showed, reflecting more capacity in the United States and high prices in Europe attracting more cargoes.

But Europe has limited capacity to receive LNG and supply concerns deepened further after Freeport LNG, operator of a major U.S. export plants, said on Tuesday it would take at least 90 days to resume partial operations after an explosion last week.

Explainer: Why Russia drives European and British gas prices
 

Related Articles

Australian Shares Trade 0.5% Lower Ahead of Jobs Data
Australian Shares Trade 0.5% Lower Ahead of Jobs Data By Investing.com - Aug 18, 2022

By Oliver Gray  Investing.com - The S&P/ASX 200 declined 36.8 points or 0.5% to 7,090.9 after the first hour of Thursday’s trade, snapping three sessions of consecutive gain as...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email