Gas Prices in Europe Hit New Highs Ahead of Fall-Winter Season

On August 30, spot gas prices in Europe breached the benchmark of 600 per 1,000 cubic meters for the first time in history. According to experts interviewed by Vedomosti, the current situation in the European gas market is related to suppliers of liquefied natural gas reorienting to the Asian market, the uncertain fate of pumping additional volumes of gas through Ukraine, and record low volumes in underground gas storage (UGS) facilities in Europe. European UGS facilities were only 66.3 percent filled as of August 30.

Europe is also suffering a gas shortage as a result of a temporary reduction in Russian gas supply through the Yamal-Europe gas pipeline after the August 5 disaster at the Gazprom facility in Novy Urengoy. At the same time, even Gazprom’s claims about the impending opening of the Nord Stream 2 gas pipeline may not substantially lower EU gas costs. The bad news about the pipeline has an impact on the pricing. On August 25, Nord Stream 2 AG lost a court lawsuit against the German Federal Network Agency, which refused to exclude the pipeline from the EU gas directive.

Alexei Grivach, Deputy Director of the National Energy Security Fund, told Vedomosti that Gazprom will not hurry to fill its European UGS facilities. Given the present circumstances, he believes it makes no business sense for the firm.

According to the expert, European UGS facilities will be less than 80% full this fall-winter season, and in the case of cold weather, the level of reserves may be much lower. Thus, there are no fundamental causes for the decrease in gas prices and demand in Europe, according to the expert. He said that a substantial drop in costs – by 20-30% from the present level – would come only after the introduction of Nord Stream 2.