Tue. Dec 7th, 2021


Russian state gas group Gazprom began filling some of its storage facilities in Europe at the first significant sign that it was prepared to act on a promise made by President Vladimir Putin to help ease the continent’s energy crisis.

Gazprom said on Tuesday it had “determined the volumes and routes for transporting the gas” to four sites in Germany and one in Austria, without adding any further details.

Putin has promised that the company will start filling some of its depleted storage sites in Europe this week after dropping the volume of gas there to extraordinarily low levels.

The move is the first preliminary sign that Russia could increase exports to Western Europe, as rising gas prices have pushed the region to the brink of a full-scale energy crisis. Some European lawmakers have blamed the problems on Moscow for restricting supplies.

Strong global demand, a drop in wind power generation and increasing consumption of liquefied natural gas in Asia have led European consumers to hope for help from Russia, which supplies 40 percent of the continent’s gas.

But markets reacted lukewarmly after it became clear that Russia would not increase supply volumes enough to ward off concerns that even a slightly colder winter than expected could cause guest shortages in Europe.

The European benchmark contract fell just 1 per cent in early afternoon trading to € 77.75 per megawatt hour on Tuesday, while the UK contract for December delivery fell almost 3 per cent to £ 1.97 per term.

Prices fell further later in the session after Gazprom discussed additional pipeline capacity through Ukraine, which enabled it to further boost exports on Wednesday, albeit still with a relatively small amount.

“The market has to accept that these discussions keep rising,” James Huckstepp told S&P Global Platts.

Other analysts have agreed that there is still reason for caution, with Russian exports to Western Europe lower than last year.

“It’s a start, but the volumes delivered [from Gazprom] so far is overwhelming and not nearly enough to significantly reduce prices, ”said Tom Marzec-Manser at ICIS, a consulting firm.

“On both the Polish and Ukrainian routes, Gazprom is still delivering below their negotiated capacity – they are sending more than the very low levels in September and October, but it is not yet nearly comparable to 2020 or 2019.”

Putin has ordered Gazprom to start filling its European storage facilities by this week after completing Russian supplies. But the president said any further gas supplies should come via the controversial Nord Stream 2 pipeline, which bypasses traditional transit routes via Ukraine to supply Germany through the Baltic Sea.

Moscow has denied allegations by some European policymakers that Gazprom is exacerbating the gas crisis by limiting export volumes to speed up the pipeline’s regulatory approval, which is not expected before the end of the year at the earliest.

Sergiy Makogon, head of Ukraine’s gas transmission system operator, said Gazprom had discussed an additional 20m cubic meters per day of pipeline capacity through Ukraine, taking the total stock to about 110m cubic meters per day. But the increase in volume was nowhere near the required level, he added.

“The figure at the same time last year was about 180m cubic meters per day and 2020 was a low gas demand year in Europe due to Covid,” Makogon said. “Now we have a huge demand, low storage, highest prices ever, but the volumes are half of what they were.”

Gazprom has eight European underground storage facilities outside Russia, including four in Germany – Jemgum, Katharina, Rehden and Etzel – and one in Austria, Haidach.

Mitch Jennings, oil and gas analyst at Sova Capital, said data to be released in the next few days would show whether Gazprom was deliberately withholding gas by revealing how much the state-owned energy company had replenished storage.

Data from the operating body Gas Infrastructure Europe show that storage at the Rehden site in Germany from 7 November was significantly below historical levels – only 9.6 percent full.

Jennings estimated that filling the Haidach, Jemgum and Katharina sites would require about 9.2 billion cubic meters, while Rehden would require nearly 40 billion cubic meters. “It’s clear Rehden can not be filled this year,” he said.

Additional report by Nastassia Astrasheuskaya in Moscow

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