European Gas Futures Flat as Nord Stream Pipeline Goes Down for Maintenance

© Reuters

By Geoffrey Smith

AiVIF.com -- European natural gas prices were cautiously flat on Monday, as participants braced for a complete stop of Russian gas flows to Germany, Europe's largest gas market.

The Nord Stream 1 pipeline began a period of scheduled maintenance on Monday, meaning that there is now virtually no Russian gas flowing to Europe's largest market. While the move was notionally routine, it comes after what the German government called a politicized Russian decision to cut supplies by 60% last month, and has stoked fears that Gazprom (MCX:GAZP) will refuse to bring the pipeline back online at the end of the period, deepening Europe's energy crisis.

By 05:40 AM ET (0940 GMT), Dutch TTF Natural Gas Futures for August, the benchmark for north-west Europe, were at 174.40 euros a megawatt-hour, down 0.5% on the day but still up more than sixfold from their average level in the first half of last year, before Russia started preparations for the invasion of Ukraine in earnest.

Prices have risen back toward their record highs in the last two weeks as the reduction of Russian gas flows has made it impossible for European buyers to continue filling their storage facilities for the coming winter season. As of Saturday, according to data from Gas Infrastructure Europe, the EU's storage was only 61.6% full, the lowest for early July in three years. The EU has said it needs to be at least 90% full by the start of October in order to avoid shortages over the winter.

There had been some relief for the stressed European energy system at the weekend, as the Canadian government had allowed compression equipment used on the Nord Stream pipeline to be returned to Russia after maintenance in a Canadian repair shop. Gazprom had cited the non-return of that equipment as the reason for a 60% cut in supplies to Germany last month - an explanation that the German government had rejected.

"The political export decision is a necessary and important first step for the delivery of the turbine,"  Siemens Energy said in a statement. "Currently, our experts are working intensively on all further formal approvals and logistics" for getting it back operational as soon as possible.

Regardless of the technical details, many European politicians fear that Russia will not bring Nord Stream 1 - which carries gas from Russia's far north to Germany under the Baltic Sea - back online when the maintenance is completed. French Finance Minister Bruno Le Maire warned at the weekend that a total cut-off of supplies "is the most likely option".

Le Maire had warned that France, like Germany, needs to prepare for rationing gas to industrial customers.

"It means looking in a very specific way at each company, each area of employment," Le Maire told Rencontres Economiques on the sidelines of a business conference. "Which are the companies that should reduce their energy consumption and which are the ones that cannot."

He singled out glass-maker Saint Gobain SA (EPA:SGOB) as a company that would need privileged access to supplies. Saint Gobain stock was still down 1.7% in Monday trading, having already lost one-third of its value this year on such fears.