November 27, 2022

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European gas prices rose as Russia announced the closure of Nord Stream 1

European gas prices rose as Russia announced the closure of Nord Stream 1

Russia has significantly reduced natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 pipeline currently operating at only 20% of the agreed volume.

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Natural gas prices in Europe rose on Monday after Russian state-owned energy giant Gazprom said it would shut down the single largest part of Europe’s gas infrastructure for three days from the end of the month.

The unscheduled maintenance work of the Nord Stream 1 pipeline, which runs from Russia to Germany via the Baltic Sea, The deepening dispute over gas between Russia and the European Union And it exacerbates the risks of stagnation and shortages in the winter.

Gas price in the first month At the Dutch TTF Centre, a European standard for trading natural gas, it jumped 19% on Monday to €291.5 ($291.9) per megawatt-hour.

The contract closed on Friday at a record high of 244.55 euros per megawatt-hour, marking its fifth consecutive weekly gain.

Gazprom said on Friday that the shutdown was because the pipeline’s only remaining compressor needed maintenance. Gas flows through the Nord Stream 1 pipeline will be suspended for three days from August 31 to September 2.

Gazprom said gas transportation will resume at a rate of 33 million cubic meters per day when maintenance work is completed “provided that no faults are identified.”

The announcement of the temporary shutdown comes as European governments race to fill underground storage facilities with natural gas supplies in a bid to get enough fuel to heat homes over the coming months.

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Russia has significantly reduced natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 pipeline currently operating at only 20% of the agreed volume.

Moscow has previously blamed faulty equipment and delays for the sharp drop in gas supplies.

However, Germany views the supply cuts as a political maneuver designed to sow uncertainty throughout the bloc and boost energy prices amid the Kremlin’s attack on Ukraine.

Two grave dangers

Until recently, Germany bought more than half of its gas from Russia. The government of Europe’s largest economy is now struggling to support winter gas supplies amid growing concerns that Moscow may soon turn off the taps completely.

Moreover, Europe’s race to save enough gas comes at a time when prices are skyrocketing. Soaring energy costs have sent household bills up, pushed inflation to its highest level in decades, and put pressure on people’s purchasing power.

Holger Schmieding, chief economist at Berenberg Bank, said Gazprom’s latest announcement was an apparent attempt to exploit Europe’s dependence on Russian gas.

“On its own, a short shutdown of the pipeline wouldn’t make much difference, especially since Russia has reduced its gas exports via NS1 to 20% of its capacity since July 27 anyway,” Schmieding said in a research note.

But it highlights two serious dangers: (1) Russia may erroneously claim that it cannot reopen the pipeline afterwards due to a “technical problem” that can only be resolved if Western sanctions are lifted, and (2) Russia may also shut down and cut other pipelines. to Europe later.

Schmieding said higher prices for even scarce gas supplies would “exacerbate the dangerous recession that Europe is already in” and warned that an immediate additional cut in Russian flows would increase the likelihood that Germany would face winter shortages.