Russia Gives Power Burn a Whole New Meaning

Russia Gives Power Burn a Whole New Meaning
'Many see the move as a power play to ratchet up political pressure on European supporters of Ukraine'.

Russia is giving the term ‘power burn’ a whole new meaning by flaring its gas instead of exporting it to Europe via the Nord Stream pipeline.

That’s what energy and environmental geo-analytics company Kayrros stated in a new market note sent to Rigzone, adding that the term is usually used to evoke the burning of natural gas in power plants.

Since June, satellite data from VIIRS and Sentinel-2 processed by Kayrros has shown “abnormally high” flaring from the Portovaya compressor station on the Russian-Finnish border, the entry point for Gazprom’s Nord Stream gas pipeline to Germany, Kayrros outlined. S-2 images suggest flaring likely began when Russia started rationing gas exports in June, “ostensibly for maintenance reasons”, Kayrros noted.

“Many see the move as a power play to ratchet up political pressure on European supporters of Ukraine that depend on Russian gas for their winter needs,” Kayrros said in the note.

“High flaring also suggests Gazprom might prefer to burn gas than to shut-in production, perhaps in the hope that the export cuts will remain temporary,” Kayrros added.

In the note, Kayrros outlined that, faced with reduced Russian gas supplies, Europe continues to import “much more LNG than normal, with the U.S. accounting for most of the increase”.

“Europe has continued to import LNG at unprecedented rates this summer in a bid to make up for reduced exports of Russian piped gas,” Kayrros stated.  

“European LNG imports significantly exceeded the level of previous years in the first half of 2022. They have since remained elevated and have not shown much of the seasonal decline normally seen in the summer,” the company added.

If Nord Stream 1 Flows Cut to Nil

If Nord Stream 1 flows are cut to nil, absent demand destruction, European gas inventories would be exhausted by year-end, BofA Global Research stated in a report sent to Rigzone recently.

“More worryingly, even at 20 percent NS1 capacity utilization (equal to current flows), we project the same outcome just one winter later in 2023/2024,” BofA Global Research added in the report.

“While NS1 used to deliver ~10 percent of Europe’s gas demand and carried ~35 percent of Russian piped exports as of 2021, we believe minimum 2022 levels implied by Europe’s take-or-pay contracts with Gazprom could be serviced without any flows from NS1,” the company continued.

BofA Global Research highlighted in the report that a 10 percent gas demand reduction year on year across the first half of 2022 has contributed to restoring current European gas inventory levels to five-year averages from record lows in January.

“We believe further demand destruction in Europe will be necessary to fill storage to targeted levels (90 percent) and avoid inventory depletion into next winter,” BofA Global Research stated in the report.

“Without any NS1 flows, we believe demand destruction will have to annualize near 10 percent. We believe most of this will likely come from the more price-elastic non-heating demand in power generation and industrial consumption - of which >20 percent may have to be permanently destroyed,” BofA Global Research added.

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