European NatGas Surges To New Record Highs As Russian Pipeline Flows Stall

European NatGas Surges To New Record Highs As Russian Pipeline Flows Stall

While expectations are that Europe can survive the next winter without Russian gas, as Wood McKenzie detailed here, that is not to say the price of that ‘survival’ will be anything but wealth-destroying.

“From record lows at the start of winter, storage levels have now re-enter[ed] their five-year range, albeit on the lower side, and are on track to be in a more comfortable position by the end of March,” Kateryna Filippenko, principal analyst, Europe gas research, at WoodMac, said.

It is our current assessment that the EU can get through this winter safely.”

But, reports this morning of intermittent gas flow supply from Russia to Germany via the Yamal pipeline with Reuters reporting that Gascade’s data showed the flow had stopped on the pipeline, which usually accounts for about 15% of Russia’s westbound supply of gas to Europe and Turkey. Gazprom has intermittently sent gas westward via the link in recent days amid high demand in Europe. Gazprom said on Thursday it was shipping gas to Europe via Ukraine in line with customers’ requests.

Additionally, the National Weather Service warns most of Germany will be colder than normal over the next two weeks.

All of which has sent European natural gas futures to a new record, rising as much as 27% to 203.865 euros a megawatt-hour, as traders continue to weigh the potential risk to natural gas flows from Russia. The U.K. equivalent contract rose to a record earlier.

In BTU-equivalent context, that is a new record spread to US (henry Hub) gas (almost 6x the high end of the range for this arbitrage over the last 15 years)…

And for comparison, the new record high natgas prices are equivalent to a $367 barrel of oil…

The European Union could be able to reduce its reliance on Russian natural gas by more than one-third within a year by turning to other suppliers and using other energy sources, the International Energy Agency (IEA) said on Thursday.

“Nobody is under any illusions anymore. Russia’s use of its natural gas resources as an economic and political weapon show Europe needs to act quickly to be ready to face considerable uncertainty over Russian gas supplies next winter,” the IEA’s Executive Director Fatih Birol said in a statement.

For now, Germany appears to be standing strong – after its volte face. As prices soar, we will see how long that lasts.

Tyler Durden
Fri, 03/04/2022 – 09:46

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