In late October, the market rejoiced and nat gas prices puked (even as we warned this was just the latest joke the Kremlin was playing at gullible Europe's expense) after news that Russian President Vladimir Putin had asked Gazprom to "gradually" raise volumes to Europe starting November 8. So fast forwarding to November 8, i.e., today when not only is there no gas being shipped to Germany via Russia's anchor Yamal pipeline as of today...
... but there are there no signs the continent will get any relief any time soon, with Gazprom moments ago tightening the proverbial (and literal) squeeze on Europe's gas supply:
- GAZPROM DIDN'T BOOK EXTRA GAS PIPELINE CAPACITY FOR TUESDAY
- GAZPROM OPTS AGAINST SENDING MORE GAS TO EUROPE VIA UKRAINE
- NO PIPE SPACE BOOKED TO SHIP EXTRA GAS INTO GERMANY'S MALLNOW.
Today's squeeze follows a supply shock on Sunday, when no extra capacity to send additional supplies to Europe was booked in auctions. That’s a disappointment for traders who had been counting on Gazprom to follow Putin’s orders to ease the continent’s supply crunch.
Natural gas prices have more than tripled this year as Europe started the heating season with the lowest inventories in more than a decade. Russia had been keeping supplies capped, but traders were hoping for relief after Putin ordered Gazprom to send more gas to Europe from Nov. 8, when domestic storage sites were set to be full. Meanwhile, after peaking above €160 then tumbling back to €60, Dutch nat gas futures have resumed their steady climb again as the prospect of a freezing European winter once again gets all too real.
"If Russia does what Putin said they will do, then there will be a big relief,” Frank van Doorn, head of trading at Vattenfall, said in an interview at the Flame gas conference in Amsterdam last week. “If there is no additional gas coming on Monday, we could see a significant price spike.”
Precisely that spike is tarting to emerge.
Another sign that Europe won’t see any relief on Monday is the result of a series of auctions for pipeline capacity. Gazprom didn’t book any of the space offered at the Sudzha and Sokhranovka entry points on the border between Russia and Ukraine. No extra capacity was booked either for the Mallnow station in Germany, which handles Russian gas through Belarus and Poland. And then, as noted above, on Monday Gazprom once again opted against sending more gas to Europe via Ukraine.
As Bloomberg notes, shipments through those routes have been far below capacity so far this month. To make matters worse, some Russian gas was flowing from Germany eastward to Poland for the second time since last weekend, the reverse of the normal direction.
In any case, European gas prices will likely spike again in coming days: without the volumes promised by Putin, there’s concern the market could soar again, with storage levels on the continent well below normal as the winter heating season gets underway.
Indeed, as Goldman wrote late on Sunday, after the initial $8/mmBtu sell-off in TTF to under $22/mmBtu following Russia’s President Putin’s statement last week that Russia would increase gas sendouts to Europe from the 8th of November, TTF prices have recovered to $25/mmBtu, as uncertainty of supply remains.
And while Goldman believes that Russia will "likely increase ﬂows to NW Europe from this week to some extent," the bank does not expect an immediate full normalization of ﬂows and, hence, "we believe price-induced demand destruction remains necessary to balance storage in the coming months."
Speciﬁcally, as Goldman concludes, "if Yamal ﬂows do not average at least 60 mcm/d from this week, which it clearly won't, Goldman believes TTF will recover to $30/mmBtu to constrain gas demand, especially given that current NW Europe weather forecasts point to the third week of November being signiﬁcantly colder than average."
And while soaring prices are a nightmare to Europe's freezing citizens, it is a blessing to the nation that clearly controls Europe's heat for the next 4 months.