Russia’s NS1 cuts leave Europe stretched on natural gas, likely below storage targets

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Further cuts in Russian gas pipeline volumes to Europe could cast a shadow over the European Union’s (EU) ambitious winter storage targets as governments across the continent warn of looming shortages.

Russian Gazprom PJSC on Wednesday reduced deliveries of natural gas on Nord Stream 1 (NS1) to 20% of its capacity, blaming excessive maintenance of the turbines feeding the line. Deliveries have been reduced since last month.

Members of the European Union have previously raised concerns that any reduction in volumes could threaten the goal of filling natural gas storage stocks to 80% capacity by November.

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The German Federal Network Agency (FNA), which regulates the gas market, announced on Wednesday that NS1 throughputs had fallen to 19.5% of the pipeline’s capacity. Representatives said gas was still being injected into storage facilities across the country, but wholesale prices had risen to the highest levels since March.

“If Russian gas supplies through the Nord Stream 1 pipeline persist at this low level, it will hardly be possible to reach a 95% storage level by November without additional measures,” FNA said of the reports. Germany’s energy goals. “The reduction also affects the transfer of gas to other European countries such as France, Austria and the Czech Republic.”

Germany has been in the “alert phase” of its emergency gas saving plan since the end of June.

Consulting firm Aurora Energy Research reported that the EU collectively had up to 3 billion cubic meters (Bcm), or about 106 Bcf, ahead of its preliminary September 1 target when Russian gas imports began to decline on Wednesday. .

Europe has also seen increased electricity demand and production impacts that have rolled back some of its earlier progress in gas storage. Fabian Rønningen of electricity market analyst Rystad Energy attributed some problems to outages at coal-fired power plants and reduced hydropower due to a heat wave in Europe.

Germany’s storage levels have risen since last week when NS1 began to sink again. Germany’s grid regulator said stocks were up nearly 67% on Wednesday.

Bridging the gap

The EU has concluded cooperation agreements on liquefied natural gas and the development of gas fields with Israel, Egypt and Azerbaijan in order to increase future gas supplies. Member states have also ordered regasification units to increase LNG import capacity, but relief could take years.

In the meantime, energy trading company Energie Danmark has signaled that rising gas market prices may reflect difficulties mainland buyers may face “as competition from Asia increases” for LNG.

Rice University’s Anna Mikulska, Baker Institute for Public Policy, said NGI production shutdowns and competition from LNG mostly leave EU cooperation as one of the few remaining lifelines on the market. continent. However, she said members’ solidarity was already being tested, with some countries avoiding imposed policies.

The EU’s storage strategy also provides a framework for member states to potentially exploit shared storage in the event of an energy emergency, but Mikulska said it was still unclear which body had the authority to apply the rules. provisions.

Poland, which has existing mandates on natural gas storage, was joined by Greece, Italy, Portugal and Spain in initially opposing a draft emergency storage plan proposal. Polish Climate and Environment Minister Anna Moskwa reportedly said this week that the country “cannot accept any decision imposed on countries”, for security reasons.

“When things get hectic, if it’s a very cold winter, your people are already out of gas and your neighbor is asking for more, it will be interesting to see if a government would be forced to share “, said Mikulska. “I’m not sure that solidarity will prevail.”

Demand destruction

If Europe is unable to fill the Russian supply gap with additional imports, it could use demand destruction strategies to make its stored gas last. EU members on Tuesday certified an agreement to voluntarily reduce winter gas demand by around 45 billion m3, or around 15% of expected demand between August and the end of next March.

The current gas supply situation has caused European industrialists to react. Germany’s BASF SE, the world’s largest chemical maker, is further cutting ammonia production in response to soaring natural gas prices and dwindling supplies. BASF representatives told the media that the prices of fertilizers, of which ammonia is a key component, could be hit.

EU member states have agreed to prioritize reduction measures to exclude most “protected customers”. This would mean ensuring residences and essential services are not impacted by energy conservation.

Principal LNG analyst Laura Page of Kpler told NGI the plan as it stands could be “very difficult” in the face of a cold winter and would likely require coordinated action.

“Member states have until the end of September to update their national contingency plans, so we should know more about the specific measures by then, but for that to be workable I think it’s going to have to involve all major gas consuming sectors,” Page said.


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