Page 5 - FSUOGM Week 01 2023

FSUOGM COMMENTARY FSUOGM

began curtailing deliveries via the Nord Stream in January last year, and if it can clinch a deal for
1 pipeline in June, initially restricting flow to just a further 50 bcm per year of gas via a new Power
40% of capacity, and later only 20% of capacity. of Siberia 2 pipeline via Mongolia. But it looks
Gazprom justified these moves by claiming that likely that Gazprom will be unable to replace the
Western sanctions had prevented the return of lost volumes in Europe until the early 2030s or
repaired equipment – primarily turbines – to later.
ensure the proper running of the pipeline. But
even after a turbine, repaired in Canada, had European gas prices slide to pre-war low
been returned to Germany for onward deliv- The Kremlin’s new decree also follows a steady
ery to Russia, Gazprom claimed that there were decline in the cost of spot volumes of natural gas
insufficient guarantees and paperwork to receive in Europe over the past month.
and install it. European leaders, most notably in The front-month TTF gas price closed at
Berlin, slammed the cut in gas flow via Nord €70.8 per MWh ($797 per 1,000 cubic metres)
Stream 1 as politically motivated. on January 3, down from €77 during the previ-
The subsequent damage, widely suspected as ous trading session, with the UK NBP contract
sabotage, to the Nord Stream 1 and 2 pipelines for February seeing a similar loss. This is a sub-
in late September made it no longer possible stantial contrast to the price that front-month
for Russia to send pipe gas directly to Germany. spot contracts in Europe were trading at in late
Meanwhile, sanctions and counter-sanctions August – a spike of close to $4,000 per 1,000
imposed by Russia and Poland have also ren- cubic metres.
dered westward gas flow via the Yamal-Eu- Despite Russia drastically reducing gas flow
rope pipeline that runs to Germany via Poland over the year, European prices have neverthe-
inoperable. less fallen as a result of ample LNG supply, mild
The result is that Gazprom saw its exports winter weather and other demand reduction
slump to a post-Soviet low of 101bn cubic and destruction. EU gas storage facilities are
metres in 2022, according to the company’s own currently at close to 84% of capacity – a historic
statistics, versus 185 bcm in the previous year. high for the time of the year.
Increased sales to China failed to make up for the This puts Europe in a very strong position
loss of market share in Europe. The company’s to manage throughout the rest of winter until
overall production was down to 413 bcm, ver- the summer reinjection period, although the
sus 515 bcm in 2021, indicating that its domestic next winter is likely to be tougher. Despite
sales also took a hit as a result of Russia’s eco- Europe aggressively expanding its LNG
nomic recession, brought on by isolation by the import infrastructure over the past year, the
West. fact remains that while the continent will be
Sales to China will continue to rise as the able to continue diverting cargoes away from
Power of Siberia pipeline ramps up to full capac- Asia for a higher price, overall, limited extra
ity – a milestone anticipated in 2025. And they global supply will become available until the
will grow even further if Gazprom can succeed mid-2020s. That means that Europe is set to
in developing a new Far Eastern route for Rus- endure several more testing winters after the
sian gas flow to China, under a contract reached current one. ™

Week 01 04•January•2023 www. NEWSBASE .com P5