After some much needed decline to NBP gas prices in May and early June. The market proved to still be extremely volatile. Early June saw prices trade around the 100 p/therm market, even dropping to 10 p/therm on the 9th June due to oversupply, only to rebound to 190 p/therm today showing the volatility seen within the space of one week. Day-Ahead power prices at 16.36 c/kWh so far this month, declining to 4.05 c/kWh in line with the monthly drop in gas prices mid-month. However this saving was short lived and Day-Ahead power prices shot back up to trade above the 20 c/kWh threshold. Below is an outline of key issues effecting gas and electricity prices so far this month.
Nord Stream 1:
Shockwaves were sent through European gas markets off the back of news that Gazprom were reducing flows through Nord Stream 1. The pipeline connects flows from Russia to mainland Europe. Gazprom (Russia’s state-owned Energy supplier) announced on the 15th June that gas supply through Nord Stream 1 into mainland Europe would decline to 16 mcm/day from the 16th June to the 21st June for maintenance purposes. This is a 60% downturn in supply via the pipeline. Speculation on how long this ramp down will last is up in the air as Gazprom claim the reason for delay in full production is that the company Siemens cannot deliver the required compressor unit to Russian soil due to Canadian sanctions. Currently the required part remains in Canada, demonstrating how disruption in supply chains can have far reaching effects on the physical delivery of gas to Europe. It also shows the vulnerability of Russian energy supply as they cannot operate without Western support.
Fire at Urengoy:
The reduction in supply flows via Nord Stream 1 also coincided with a fire in one of Russia’s production sites called Urengoy. Urengoy is the second largest gas production field in the world. After a temporary halt in production, it ramped back up again once the fire was extinguished. Gazprom later confirmed that the fire at the site would not affect production targets.
US Freeport LNG Outage:
The Texan LNG terminal at Freeport is one of the largest LNG terminals in the world and a fire at the facility has caused a temporary shutdown. The operator is targeting a partial restart of the facility in less than 90 days, with all necessary repairs and the plant fully operational by the end of 2022. The plant has been a key contributor to European gas supply of late, with the plant delivering 5.8m tonnes from January to May so far in 2022. This outage will no doubt influence Europe’s supply picture over the coming months.
European Gas Storage :
European storage targets may be severely affected by the potential decline to Russian supply over the coming weeks. European storage targets are that storage facilities will be at least 90% full by the 1st November 2022, to prepare for the winter season. Sustained reduction in flows through Nord Stream could hinder Europe’s summer storage injection campaign. This puts Europe in a vulnerable position for security of supply in the scenario of a cold winter period.