EUROPE WITHOUT RUSSIAN GAS

BLOOMBERG- June 16, 2022 - Europe risks running out of natural gas stockpiles in the middle of peak winter demand should Russia’s supplies via a critical pipeline stop completely, according to consultant Wood Mackenzie Ltd.

In the worst-case scenario where the Nord Stream pipeline to Germany is shut totally, Europe will fail to reach storage levels the European Union has ordered by the start of the heating season in November. And the region could run out of stocks completely by January, Massimo Di Odoardo, vice president for gas and LNG research at WoodMac said by email.

“Even considering counter measures, it might be inevitable that some rationing of demand will need to take place,” Di Odoardo cautioned.

In a move that roiled energy markets and fueled a fresh price rally, Russia’s gas giant Gazprom PJSC slashed supplies to customers in Italy, Germany, France and Austria in the past two days. The exporter said it had to curb the capacity of its Nord Stream link across the Baltic Sea because of issues with repairs of Siemens AG-produced turbines. But Germany challenged that, calling the reductions “politically motivated” and aimed at unsettling markets.

Should lower Russian flows persist for longer, they may derail the summer storage refill campaign just as inventories were recovering, boosting optimism the region would reach the EU target of a minium 80% fill level before Nov. 1.

A complete halt in Nord Stream flows would bring Europe’s storage levels to just 59% by Nov. 1, Di Odoardo said. If the pipeline continues to run at only 40% of its capacity, then storage levels could reach 67% by then, with the risk of inventory depletion only by the end of the winter, he said.

But if the pipline returns to normal operations, it’s then possible to fill the storage sites up to 80% by Nov. 1, even amid the ongoing prolonged outage at Freeport LNG, a US gas liquefaction plant, Di Odoardo said.

LNG has played a crucial role since the start of the year as Europe has imported record volumes of the fuel, in particular from the US.

“An influx of LNG year-to-date, predominantly driven by increased US exports, remains a key lever in offsetting reduced levels of piped gas from Russia and has led to near-full recovery toward historical gas storage levels as we enter the summer,” Patricio Alvarez, a Bloomberg Intelligence energy analyst, said in a note.

“Still, immense gas-price volatility on the back of Russia’s supply squeeze and narrowing global LNG supply is likely to lead to higher storage draws, which could accelerate further depending on summer weather conditions.”

Increased arrivals of LNG are also stretching LNG import capacity and highlight the lack of available interconnectors within Europe.

In the worst case scenario, “certainly more LNG would be imported, although that will be limited by regas availability which is already running close to full capacity,” Di Odoardo said. That opens up the possibility that some form of demand rationing might be needed, he said.

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