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European Gas Prices Slide on Some Signs of Higher Russian Flows

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9 November 2021, 10.47

(Bloomberg) -- European natural gas prices slipped on signs Russia may be starting to gradually deliver the boost in supplies President Vladimir Putin promised. 

Benchmark futures traded in the Netherlands fell as much as 6.2%, with data signaling an increase in Russian gas flows via Ukraine. Gazprom PJSC has approved a plan to refill its European storage sites this month and, according to the Ukrainian gas grid operator, booked some of the additional pipeline capacity offered at an auction on Monday for shipments into Slovakia.

Europe’s top supplier had promised to boost gas flows to the region starting Monday, with Putin ordering Gazprom to fill its European storage sites following the completion of Russia’s domestic stockpiling campaign. While flows didn’t get a boost on Monday, supply is looking less tight on Tuesday, with gas also now flowing westward from Poland to Germany, resuming the normal direction.

Benchmark European gas futures were 3.1% lower to 76.65 euros a megawatt-hour by 10:24 a.m. in Amsterdam. The equivalent U.K. contract dropped 3.2% to 196.50 pence a therm.

European gas prices have more than tripled this year as Russia kept supplies capped just as liquefied natural gas cargoes were being diverted to Asia. That meant Europe started the heating season with the lowest inventories in more than a decade.

But there are now signs that the tightness may ease and Putin will keep his promise. Gazprom booked 10 million cubic meters a day of pipeline capacity at the Ukraine-Slovakia border at an auction on Monday. That’s still just about one-eighth of what was offered at the day-ahead auction for extra pipeline space. Nothing was allocated in auctions for capacity on other points.

Putin’s promise primarily referred to Gazprom filling its own storage sites in Europe, which have largely remained below average levels seen across the region. The Russian gas giant added some fuel into its German sites over the weekend. Some injections continue but at lower levels, data from its Astora unit showed. Gazprom said on Tuesday it determined reinjection volumes and routes to fill its five European storage facilities.

Gazprom is following Putin’s directions to refill inventories, said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies.

“I take it as an indication that Gazprom will certainly refill its European storages to the level necessary to meet its long-term supply contracts over the winter period,” she said. “We will see a gradual increase in flows on the Ukrainian and Polish corridors over the course of November-December.”

But Gazprom is unlikely to make additional bookings on the existing routes and offer extra volumes to Europe unless there is an indication from the German regulator that the certification of its new Nord Stream 2 pipeline “is making good progress,” she said.

The boost in supply also came as the Yamal-Europe pipeline from Russia to Germany via Poland switched back to its normal direction late Monday, after sending gas eastward --the reverse of normal flows -- since Saturday. That’s the second such occurrence in two weeks.


Still, bullish factors remain as the Russian supply boost isn’t bringing flows to levels seen even in early summer, let alone typical winter levels. At the same time, patches of cold weather are expected over the next 30 days.


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