Gas Prices Like a Leaf in the Wind

Gas Prices Like a Leaf in the Wind
Current energy crisis forces intensified this week.

Gas prices appear like a leaf in the wind, with little indication on how far they will be carried and in what direction.

That’s what Rystad Energy Vice President Emily McClain said in a market note sent to Rigzone on Wednesday, adding that current energy crisis forces intensified this week with gas market concerns centering around the news of subsea damage that has caused leaks on both the Nord Stream 1 and Nord Stream 2 pipelines.

“Early this week, European gas prices fell to almost $50 per million British thermal units (MMBtu) on the back of high storage levels at more than 87 percent full, but quickly rose on news of the damage to both Nord Stream pipelines,” McClain said in the note.

“We cannot expect prices to drop any time soon – at least not until we see some form of improvement in supply,” McClain added.

In the note, the Rystad VP said a near-guaranteed supply cutoff will inevitably affect Europe’s gas supply this winter and warned that the impact on gas storage inventories ahead of next winter is even more concerning.

“Supply cutoffs of this magnitude cannot be shaken off –even a short-term political swing in a pro-Russia direction would not be able to piece back together the severely dismantled gas system in Europe,” McClain said in the note.

“With news of the pipeline system damage, Nord Stream 1 nominations that had emerged last week, and that were then renominated to zero, were clearly an error and no flows were reported,” McClain added.

The Rystad VP outlined that the possibility and timing of repairing both pipelines is unclear and depends on the severity and type of damage to the system. McClain also said the leakage could have significant impacts from the environmental perspective and European energy infrastructure securities.

In a separate market note sent to Rigzone on Tuesday, Senior Rystad Analyst Fabian Rønningen said leaks in the Nord Steam pipelines “lead to suspending gas flows for at least one month”.

Gas Prices Trending Lower

In a report sent to Rigzone this week, Standard Chartered analysts noted that European gas prices had been trending lower in line with the improved inventory position before the damage to the Nord Stream lines was reported.

“While short-run sensitivity to headlines remains very high, we still think the path of least resistance for European gas prices will prove to be lower,” the analysts said in the report.

“Our scenarios suggest that Europe’s inventory situation will likely remain comfortable even if all remaining Russian gas was cut off immediately; such a cut-off would result in the loss of 16 bcm of imports over the next six months, a manageable loss, given inventory of 100 bcm and a 16.63 bcm year on year increase in inventory,” the analysts added.

In the report, the Standard Chartered analysts outlined that they were not expecting any gas to flow through either pipeline in the future, “with Nord Stream 2 unlikely to ever be approved and with limited political appetite in Germany to purchase further gas through Nord Stream 1 even if Russia was prepared to let flows resume after its end-August shutdown of the pipeline”.

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