(Updated)

European gas prices jump after damage to idled Russian pipelines

European gas prices jump after damage to idled Russian pipelines
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LONDON (Sept 27): European natural gas surged after four days of losses as damages reported at the shuttered Nord Stream pipeline added to uncertainty over future Russian supply.

Benchmark futures rose as much as 12%, after dropping to a two-month low earlier this week. Two lines of the key Nord Stream link to Germany and one line of the idled Nord Stream 2 reported drops in pressure on Monday, with gas leaks identified by Swedish and Danish authorities in the Baltic Sea.

There have been no gas supplies on this route from Russia over the past month, but the incident adds to nervousness in the market with traders and officials watching for any indications of sabotage. The operating company Nord Stream said that damage to the network is "unprecedented" and it is impossible to tell when flows could technically resume, but it would not elaborate on details.

Separately, the Norwegian oil and gas regulator reported on Monday that unidentified drones were seen close to its to offshore installations, urging "increased vigilance by all operators and vessel owners".

Both this warning from Norway, and news about Nord Stream, raised concerns and "injected some volatility" in the market, EnergyScan, the analysis platform of Engie SA, said in a note.

Nord Stream delivered nearly 40% of Russia's gas to Europe last year. But Gazprom PJSC slashed flows on that route in several steps starting in June, citing technical issues with equipment at its entry point, before halting supplies altogether. Nord Stream 2, which runs close to the first conduit, was built and filled with technical gas in 2021 but has never delivered any fuel to Europe amid the Kremlin's stand-off with the West.

The German network regulator's president, Klaus Mueller, said on Twitter that the market situation remains "tense" but the country and the European Union are no longer dependent on those supplies. Nord Stream issued an outage notice formally active until Oct 26, while the German economy ministry said it is "in the process of clarifying the matter".

Dutch front-month gas, the European benchmark, rose as high as €194.74 (RM864.10) a megawatt-hour before trading at €191 per megawatt-hour by 11.32am in Amsterdam. The UK equivalent rose 8.6%.

Managing Russia's cuts

European prices have dropped almost 40% from the highs of August as stockpiles build steadily to meet winter demand and nations take steps to reduce consumption. Storage sites are about 88% full, above the five-year average, even though Russian pipeline exports have dropped to the bare minimum. Strong imports of liquefied natural gas (LNG) and mild weather forecasts for October — after the current cold spell — have also helped market nerves.

The continent may import almost 40% more LNG during the coming winter than in the prior year, according to BloombergNEF. Along with demand destruction resulting from higher prices, those shipments are enough to cover a complete halt in Russian pipeline flows from Oct 1, it said.

Still, traders are closely watching Moscow's moves to see if the situation deteriorates. There are also concerns about Europe's ability to fill storage next summer without Russian volumes.

"We have bought another six months to get through the winter, albeit at a high cost in subsidies, and will need to use this time to reinforce a message that this is not going away," said Martin Devenish, a former Goldman Sachs Group Inc managing director who now works for S-RM Intelligence & Risk Consulting Ltd. "The real crisis is for next winter, and the impact of it may last for [three to four] years if everything stays the same."

Meanwhile, the European Commission, under pressure to come up with proposals to rein the region's worst energy crisis in decades, will postpone publishing its detailed plan on future steps to lower gas prices and ease volatility in the market. The release of the document, tentatively planned for Sept 28, is being moved to a later date, according to EU diplomats. Instead, the commission on Wednesday will discuss, whether price caps can be implemented.