Russia Resumes Nord Stream Natural Gas Deliveries To Europe

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by Tyler Durden
Thursday, Jul 21, 2022 - 11:33 AM

After more than a week of maintenance, Russia resumed sending natural gas to Europe through the Nord Stream pipeline system, dispelling investors' fears of a "Doomsday" scenario.

Around 0700-0800 local time, Russian NatGas flowed through the biggest pipeline into Europe at roughly 40% capacity, the same level before flows were curtailed to zero for ten days of planned maintenance. 

"We are in the process of resuming gas transportation. It will take several hours to reach the declared volumes," Nord Stream 1 said.

Dutch front-month futures, the European benchmark, sank on this bearish development, dropping as much as 6.5% to 145 euros a megawatt-hour and trading around 146 euros at 0700 ET. 

"The resumption this morning of flows along Nord Stream is likely to lead to a collective sigh of relief from not just the European gas market, but from the wider economy," Tom Marzec-Manser, head of gas analytics at ICIS in London, told Bloomberg

Marzec-Manser said physical flows entering Germany are bearish for NatGas, even if the pipeline operates at reduced capacity. 

The resumption of flows comes as Europe prepares for the worst energy crisis in decades. Budget Commissioner Johannes Hahn doesn't expect the pipeline to return to full capacity.

Klaus Mueller, head of German regulator BNetzA, tweeted earlier and confirmed NatGas flows "can today reach the pre-maintenance level of approx. 40% utilization (approx. 700 GWh/d)," but he poured cold water on the belief that 60% utilization would return anytime soon.

Earlier this week, there were reports that Russian NatGas supplier Gazprom "declared force majeure on gas supplies to Europe to at least one major customer starting June 14," according to the letter seen by Reuters. "It said the force majeure measure, a clause invoked when a business is hit by something beyond its control, was effective from deliveries starting from June 14," Reuters noted. 

There was even talk from Russian President Vladimir Putin on Tuesday, who said Nord Stream's capacity could be reduced unless a critical pipeline turbine undergoing repairs in Canada is returned to Russia soon. Putin added delays in receiving the turbine could lead to pipeline capacity being slashed to 20% by the end of the month. 

Ahead of the resumption, we penned a note titled "What The Reopening Of Nord Stream 1 Means For Europe," detailing research from Deutsche Bank's Jim Reid and Goldman energy analyst Samantha Dart on any changes after the pipeline reopening -- their thoughts: more uncertainty. 

Meanwhile, Kremlin spokesman Dmitry Peskov told reporters during a conference call today that Russia "categorically rejects" the accusations reducing NatGas flows to Europe is politically motivated. 

Tim Partridge, head of energy trading at DB Group Europe, wrote in a note to clients that he disagrees.

"Sending flows, but at capped levels, runs in Russia's favor ... It allows the Kremlin to continue to use the pipeline as a way of increasing volatility, while still reaping immense profits on inflated energy prices." 

There have been increasing concerns Europe might not survive the winter without Russian gas. This was echoed by Muller on Sunday. The resumption is a promising sign and will allow countries like German to continue injecting NatGas into depleted storage facilities for the winter. However, reduced rates could suggest supplies will be very tight.