European gas prices soar after Russia’s Gazprom reduces deliveries through Poland

The European gas market after a short respite has soared again. On Monday, gas futures linked to spot prices at the Dutch TTF hub jumped by 13% and exceeded $ 900 per thousand cubic meters after the Russian gas giant Gazprom decided to drastically reduce gas deliveries through Poland and refused to book additional transit capacity through Ukraine.

At the last gas transit auction of the European GSA Platform, Gazprom booked only 31.4 million cubic meters per day through the Polish branch of the Yamal-Europe gas pipeline.

The company bought only a third of the auctioned gas transit volume for October (89 million cubic meters per day). That means deliveries via a pipeline connecting Germany to Western Siberia's fields will be almost three times lower next month than in early summer (84 million cubic meters).

Gazprom began to sharply reduce gas deliveries to Europe at the end of July (from 84 to 50-60 million cubic meters), and then cut the volume by another 2-3 times because of an accident at the gas treatment plant in Novy Urengoy. Deliveries returned to normal volumes (84 million cubic meters per day) after the visit of German Chancellor Angela Merkel to Moscow at the end of August. But now they are about to fall again to their lowest values this year.

The attempt to sell Gazprom additional transit capacity through Ukraine brought no results. The company is pumping 109 million cubic meters per day under a firm contract concluded with Kyiv at the end of 2019. Until mid-summer, Gazprom booked additional volumes (up to 15 million cubic meters per day) but abandoned this practice in September.

Thus, in October, gas deliveries to the EU along the Polish route will be reduced threefold, and along the Ukrainian route it will remain 12% lower than in the first half of the year.

At 14.29 GMT, gas futures for delivery in October are traded in London at $ 885.7 per thousand cubic meters, and previously reached $ 907.01.

Gas with delivery in November costs $ 888.2 per thousand cubic meters, while at the peak the prices touched $ 912. The same was for the gas with December delivery, which later felt to 889.6 dollars.

“The delay with the gas intake into the European storage facilities is considerable. It is impossible to catch up, so Europe will enter the autumn-winter season with a shortage of gas, said on Friday the head of "Gazprom" Alexei Miller.

According to him, the shortage of gas in the underground storage facilities is about a 22.9 billion cubic meters, which will lead to new record gas prices in Europe.

"Prices in Europe have already broken all possible records. And maybe even will soon surpass them," said Miller.

Gazprom's tough strategy to push for early approval of the long-suffering Nord Stream 2 project can backfire in the near future.

And although there is currently a shortage of LNG (its supplies fell by 20% year-on-year), the world production of LNG continues to increase, and about 100 million tons of additional supply will enter the market by 2025.

Gazprom’s large long-term contracts end in 2025 and their extension may depend on the discussion about Europe’s gas dependence on Russia.

  Gazprom, Russia, EU, Nord Stream