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Gas price soars as Gazprom throttles flows to Europe

European gas prices soared on Wednesday as Moscow further restricted flows through the Russia-to-Germany Nord Stream pipeline.

Spot gas prices on the Dutch TTF hub, the European benchmark, hit €228 per megawatt-hour at 9:22 a.m, rising for the sixth consecutive day. That’s compared to a Tuesday close of €199/MWh. A year ago, the price was €22.97/MWh.

Deliveries via Nord Stream sank to just 20 percent of capacity on Wednesday, according to the German grids. Italy’s Eni also said it was expecting flows to reduce by around 7 million cubic meters (mcm), down to 27 mcm. 

Russian gas supplier Gazprom initially notified the plunge on Monday, citing the delayed return of a gas turbine for a compressor station.

But EU Energy Commissioner Kadri Simson called the drop in flows “a politically motivated step” at a Tuesday meeting of EU energy ministers.

Tom Marzec-Manser, head of gas analytics at the ICIS consultancy, said flows had fallen to 32 mcm a day. “The key question is now, for how long? Will the Canadian turbine get re-installed in the coming days?”

The Ukrainian government is blaming Russia for using gas flows as a political weapon against the EU in retaliation for its support for Kyiv.

“As it is clear to everyone that this is intended Russian price terror against Europeans,” Ukrainian President Volodymyr Zelenskyy said on Tuesday. “Using Gazprom, Moscow is doing all it can to make this coming winter as harsh as possible for the European countries.”

Wednesday’s supply squeeze further undermines Gazprom’s already spotty reputation as a reliable gas supplier. It has cut off or limited flows to a dozen EU countries. The EU is scrambling to cut its dependence on Russian energy imports but that takes time, so this winter makes the bloc particularly vulnerable to supply-related surprises from the Kremlin.

Russian gas exports to the EU are at about a third of last year’s levels, falling steadily since the February 24 invasion of Ukraine, according to research from the Bruegel think tank in Brussels.

EU energy ministers on Tuesday agreed to mandatory, bloc-wide gas rationing in case of winter supply shortages. Meanwhile, Russia’s limited gas exports are making it difficult for EU countries to fill their gas storage facilities ahead of the heating season; the bloc’s target is to have them 80 percent full by November 1.

The European networks of gas grid operators, ENTSO-G, released a report Wednesday saying that in the event of a full Russian gas shutoff, most European gas storages would be depleted over the winter and would be unable to refill to secure levels over next summer without “immediate” market and political action.

“It is essential that all European storages continue to inject gas as much as possible during Summer 2022, so we can be in the best position possible for the upcoming winters,” the group’s Director General Piotr Kuś said in a statement.

Despite the cutbacks, Moscow insists it can still be counted on to ship gas to the EU.

“Russia is a responsible gas supplier, and regardless of what anyone says in the European Commission, in European capitals, in the United States, Russia was, is, and will continue to be the country that largely guarantees Europe’s energy security,” Kremlin spokesperson Dmitry Peskov said earlier this week.

Wednesday’s reduction in supplies through Nord Stream adds to a series of technical issues at liquefied natural gas (LNG) facilities globally that are exacerbating a supply crunch, as countries aim to stock up ahead of winter.

Outages “idled as much as 30 [million tons per annum] of LNG capacity in the last few weeks, or about 8 percent of global production,” said Antoine Halff, chief analyst at satellite monitoring firm Kayrros in Paris.

This article has been updated with the ENTSO-G report and other details.

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