Analysis-Hoping for cheaper gas to come, Europe overturns Russian link to tap storage | Investment News

MOSCOW (Reuters) – Gas traders are relying on stocks to supply European buyers and avoid paying near-record prices, industry sources and market analysts said, explaining the unusual reversal in the direction of flow via a major Russian gas pipeline.

The 33 billion cubic meter (bcm) Yamal-Europe gas pipeline, which accounts for about a sixth of Russian exports to Europe and Turkey, has been in reverse mode since December 21, meaning gas is being shipped from there. Germany to Poland.

In Poland, which failed to reach a new gas supply deal with Russia last year, some traders have already used up their annual contract volumes with Russian supplier Gazprom.

That would mean paying high spot prices if they buy additional gas from Russia, so they’re tapping into storage instead. Their hope is that by the time stocks are low, prices will be cheaper, but the risk is that an overreliance on stocks will keep the market high for longer.

“Gas is extracted from European underground storage facilities in Germany,” Gazprom spokesman Sergey Kupriyanov told Russian broadcaster NTV on Saturday.

He said it was “not rational” to run out of stocks during the peak winter season.

Gazprom customers in Germany and France have also exhausted their annual contractual gas purchase volumes, he added.

In France, Gazprom’s main partner is Engie, while in Germany they are Uniper, Wingas, Shell and Wintershall Dea.

The companies did not respond to requests for comment.

Gazprom said on Thursday that Europe had withdrawn more than 45% of the gas it had injected into storage this year.

A source close to Gazprom, speaking on condition of anonymity because he was not authorized to speak to the press, said the pipeline is expected to resume normal gas flows west in early January. For January, Gazprom has reserved 8.3 million kilowatt hours per hour (kWh/h) of gas transit capacity through the pipeline.

In the absence of Poland’s usual long-term gas deal, Gazprom has reserved short-term transit capacity, but it has failed to do so in the past 10 days, drawing criticism from the West , he was deliberately adding to the price pressure, which Russia refused.

Russia is at odds with the West on a range of issues and is awaiting approval from Germany and the European Union for its new Nord Stream 2 gas pipeline to Germany. Russian President Vladimir Putin said supply from the new route could calm prices.

He also said Germany was reselling Russian gas to Poland and Ukraine and blamed the pipeline reversal and price spike on German gas importers.

Germany’s economy ministry declined to comment on Putin’s remark.

“The current flow direction reflects the behavior of market participants. The German market is supplied via other transport routes,” said the German Federal Network Agency.

The constant reverse flows added to the price frenzy in Europe. The benchmark gas price reached a historic high last week at more than 180 euros per megawatt hour, against 19 euros at the start of 2021.

Prices have fallen below 100 euros since last week, helped in part by LNG cargo arrivals.

Alexei Grivach, of the Moscow-based National Energy Security Fund, said current spot prices were unaffordable for most industrial consumers.

“For some (gas buyers) it is more profitable to extract more gas from underground storage facilities, some are looking to redirect LNG (liquefied natural gas) volumes to Europe,” he said. .

A spokesman for Polish energy company PGNiG acknowledged that the reverse flows were happening but would not go into details.

“I cannot confirm whether the gas returning from Germany is going to PGNiG, as there are many companies in the market and we consider this a trade secret,” the spokesperson said.

Katja Yafimava, senior researcher in the gas research program at the Oxford Institute for Energy Studies, said there was no need for Gazprom to reserve capacity on Yamal if it has no gas demands on the other side of the pipeline.

“Thus, European buyers have the choice of drawing gas from storages and liquefied natural gas – or asking Gazprom to enter into new contracts/modify existing contracts allowing for higher volumes,” she said. .

(Reporting by Vladimir Soldatkin and Oksana Kobzeva; additional reporting by Anneli Palmen in Berlin and Anna Wlodarczak-Semczuk in Warsaw; editing by Barbara Lewis)

Copyright 2021 Thomson Reuters.

Harry D. Gonzalez