Gas Surges in Europe Amid Lower Russian Supply and US LNG Delay

(Bloomberg) -- European natural gas surged after Russia’s Gazprom PJSC said technical issues could reduce supply through an important link to Germany just as a key export terminal in the US is likely to remain shut for three months.

Benchmark futures jumped as much as 21% as Gazprom said flows via the Nord Stream pipeline, the biggest link to the European Union, will be limited by 40%. One of the reasons is that Siemens AG failed to return on time some equipment it was repairing for a pumping station in the Baltic Sea, the Russian producer said Tuesday. 

Also read: Russian Sanctions Leave Nord Stream Turbine Stranded in Canada

Fears that Russian shipments may be disrupted have persisted for months as the war in Ukraine drags on. Those concerns were compounded last week when a fire broke out at the Freeport LNG terminal in Texas. The operator said it may take 90 days for a partial restart of the facility, far longer than an earlier projection of a minimum three-week shutdown. Full capacity isn’t expected to be available until late 2022.

“That’s yet another sign how fragile the European gas market is,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Europe is already struggling with news of reduced supplies from Russia through Nord Stream.”

The Texan export terminal has three-quarters of its supply available for spot sales, making it a useful alternative source for Europe as flows from Russia become less certain. The continent needs the supply to fill storage facilities in time for next winter. 

Cargoes from larger US plants such as Sabine Pass, Corpus Christi and Cameron LNG could help supply Europe, Zongqiang Luo, an analyst at Rystad Energy AS, said in a note. “Favorable” spot prices mean countries such as Nigeria and Algeria could also increase production to help “fill the void,” he said.

Dutch front-month gas, the European benchmark, was 18% higher at 98 euros a megawatt-hour at 4:34 p.m. in Amsterdam, after earlier rising to 101 euros. The UK equivalent increased more than 32%.

Also read: European Power Climbs as Hot Weather Boosts Cooling Demand

Russian Sanctions

Sanctions against Russia because of the war in Ukraine have left a turbine key for the functioning of the Nord Stream gas pipeline stuck in Canada, according to a person familiar with the matter. A second turbine that’s also due for maintenance cannot be sent for work overseas. 

Still, Germany’s economy ministry said that supply is “currently guaranteed.” The country gets about 35% of its gas from Russia. 

Gazprom had planned flows of 167 million cubic meters per day through Nord Stream but it can send only 100 million daily, it said. Russian shipments through the pipeline are set to swing broadly on Tuesday, nominations show. The link is also scheduled to shut down between July 11 and July 21 for seasonal maintenance.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.