Andrey Maslov: ‘Gas war continues and is bringing a lot of problems’

Finam FG analyst — on the situation on the natural gas market and the prospects of energy crisis in the EU

The possibilities of gas supplies to the EU have fallen due to sanctions, but Russia is ready to supply it in contracted volumes, stated Deputy Chairman of the Security Council Dmitry Medvedev. He noted that our country does not want to cut off gas to Europe, but it is going along with the US policy. And if Germany wants to buy LNG in Canada, although it is many times more expensive than pipeline from Russia, let it buy, Medvedev added. Meanwhile, gas prices in Europe have already exceeded $3,000 per thousand cubic metres and continue to grow, and investors are afraid of an energy crisis in the EU. Andrey Maslov, an analyst at Finam, writes about the situation on the natural gas market in the author's column for Realnoe Vremya.

There is a threat that Nord Stream-1 may not restore the work

Gas prices in Europe have exceeded $3,000 per thousand cubic metres (at the moment reaching 290 euros/ MWh) and continue to grow. Investors are afraid of an energy crisis in the EU, and the euro has fallen below parity with the dollar against this background.

The gas war continues and is bringing a lot of problems. There is a threat that Nord Stream 1 may not restore operation after the start of a new three-day maintenance period, or at least not restore capacity to the end, as it was previously. Gazprom announced that it will completely stop gas supplies via the Nord Stream 1 gas pipeline to Germany from August 31 to September 2 to carry out repair work on the only working turbine of the Portovaya compressor station. Currently, Nord Stream operates at only 20% capacity, which limits the flow of gas at the level of 33 million cubic metres a day.

Despite that Gazprom declares that after the turbine maintenance, pumping capacity will remain, it is worth recalling that after the maintenance in June, the Russian gas giant reduced the capacity of the gas pipeline from 40% to 20%, which led to a more than twofold increase in gas prices in continental Europe. There are concerns that any maintenance could be used as an excuse to stop the line for a long time, as Moscow blamed Western sanctions for the capacity cuts that interrupted its normal maintenance schedule.

Europe has to compete with major Asian LNG importers

The increase in European prices for TTF by more than 14 times compared to the average level over the past decade may lead to a reduction in industrial production in continental Europe and plunge the region into recession, traders and economists believe. Widespread concerns about gas shortages this winter have forced consumers to try to lock in supplies, which has led to higher prices even amid fears of a serious economic downturn.

Gas prices in Europe have also reacted to a sharp rise in prices for liquefied natural gas (LNG) in Asia, where state-owned utilities are starting purchases ahead of winter. Europe has to compete with major Asian LNG importers such as China, Japan and South Korea.

Also speaking about the energy crisis in Europe, it is worth mentioning the situation in the United States — it is one of the world's largest LNG exporters. Since 2014, the United States has increased LNG volumes, becoming the world's third exporter of liquefied natural gas, and with the construction of the sixth liquefied natural gas plant in 2024, the United States can become the leader in LNG exports. Recently, gas prices at Henry Hub have been extremely unstable — in many ways the reason for this was the explosion of a pipe at one of the terminals for pumping gas to tankers, which led to the redistribution of capacity for domestic consumption and the collapse of local gas prices. However, due to the hot summer and increased demand for gas in the world, American gas prices have jumped to multi-year highs.

Least of all gas wars will affect Britain or France

It is also expected that the European government will continue to redistribute and reduce gas demand in order to primarily support the full functioning of households. Previously, it has already been decided to reduce gas consumption by 15% to save money, but it is possible to further reduce consumption. It is also worth understanding that to a greater extent the energy crisis concerns Germany and the countries of Central Europe, which do not have their own ports and storage facilities for LNG, and the bulk of energy resources came from Russia. Gas wars affect Western Europe much less, like Britain or France, where there are terminals and their own energy resources (even functioning nuclear power plants).

Thus, it can be assumed that gas prices will continue to gradually increase, but at the moment there is probably only one scenario for a sharp jump in prices by 5-15%, as it was recently," the final stop of gas pumping to Europe. In general, it can be expected that prices for natural gas at the Dutch TTF will remain close to a new record high of $3,000 per thousand cubic metres (or approximately 250-280 euro/MWh).

Andrey Maslov

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The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.