European Gas Notches Another Weekly Gain on Russia’s Tight Grip

(Bloomberg) -- European natural gas posted its longest stretch of weekly gains this year, even as traders turn their attention to a potential easing of Russia’s supply squeeze. 

The prospect of a detente emerged with Germany expecting Canada to return a turbine for the Nord Stream pipeline that’s been stuck there because of sanctions on Russia. The Kremlin said the equipment would help raise shipments to Europe, helping drive gas prices lower on Friday.

Still, it’s unclear if that piece of equipment alone will allow Gazprom PJSC to operate the pipeline at full capacity. For that, the link needs six major turbines, but not all of the components that are still in Russia are in working condition because they need maintenance, the company has said.

Canada’s release of the part could potentially set a precedent, said Nick Campbell, a director at consultant Inspired Plc. Even if the one turbine won’t get Nord Stream flows to 100%, “the Russian rhetoric suggests they would increase from current levels.” It also brings the possibility that Russia may increase shipments through other routes, he said.  

The supply squeeze is fueling Europe’s worst energy crunch in decades, as bills have ballooned while once rock-solid utilities are struggling to stay afloat. A prolonged cut in flows from Russia -- historically the continent’s biggest supplier -- would jeopardize plans to have storage sites sufficiently filled in time for winter, when demand typically peaks.

That’s keeping prices higher for a fourth straight week. The Nord Stream, the biggest link to the European Union, is due to shut on Monday for about 10 days of seasonal maintenance, and there’s been concerns about the pipeline’s return after the work.

“I do hope that we will not only come back with Nord Stream 1, but with its full capacity,” Uniper SE Chief Executive Klaus-Dieter Maubach said Friday as the gas giant asked the German government for a bailout, the first major corporate casualty of Moscow’s energy squeeze. 

Germany’s Uniper Seeks Bailout as Victim of Putin’s Gas Feud

Dutch front-month gas, the European benchmark, settled 4.4% lower at 175.21 euros per megawatt-hour but was still nearly 19% higher for the week. The contract has more than doubled its value over the past month. The UK equivalent dropped 14%, yet also posted a weekly gain.

The Nord Stream pipeline, also known as NS1, has been working at just 40% of its capacity after Russia slashed shipments last month. It cited technical issues with turbines that need to be serviced in Canada -- with one of them stuck there following Ottawa’s sanctions against Moscow over its invasion of Ukraine.

‘Fear Premium’

“Increased nervousness as we head toward NS1 maintenance suggests it’s unlikely we’ll see any respite of fear premiums in prices in the short term,” analysts at Alfa Energy Ltd. said in a note.

Germany, which has accused Putin of using energy exports as a weapon, has asked Canada to release the turbine and remove an excuse for Moscow to continue capping supplies. Kyiv has called on Ottawa to keep it, saying Russia could boost shipments via Ukraine, but has been rejecting that option.

“If the turbine comes back from maintenance, yes, that will allow volumes to be increased,” Kremlin spokesman Dmitry Peskov told reporters Friday. “There is only one question: why they didn’t do that immediately.” 

Russian President Vladimir Putin held discussions on energy issues with government officials on Friday. For now, only Putin’s opening comments on the market have been broadcast by state TV, in which he reiterated that Western nations made a mistake by imposing energy sanctions on Moscow.

Constrained LNG supply due to a prolonged outage at a major export facility in the US, hot and dry weather in Europe along with low French nuclear power generation -- which is keeping gas demand in the power sector relatively high -- are further exacerbating the situation, Andy Sommer, head of fundamental analysis and modeling at trader Axpo Solutions AG, said in a note.

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