European Gas Retreats as Russia Pipe Blast Not Affecting Flows

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(Bloomberg) – European natural gas prices fell after Gazprom PJSC said its supplies will continue through alternative routes following a pipeline blast in Russia.

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Fuel will be delivered in full to customers, the company said, confirming earlier reports that a fire damaged a link on Tuesday. The pipeline is part of a major transit route through Ukraine and into the European Union. The Ukrainian gas network also confirmed that Russian flows continue as normal. Benchmark futures initially rose on reports of the blast.

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After that brief distraction, traders are now back to assessing the impact of next year’s proposed price caps in the European Union – with many industry watchers seeing both bearish and potentially bullish drivers of this move. Ample LNG supplies combined with warmer weather this week are also helping to keep prices under control.

Also read: Europe becomes semi-reluctant interventionist in gas markets

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Gas consumption in Europe is expected to shrink by more than 50 billion cubic meters in 2022, “the sharpest drop in history,” led by price-driven demand destruction and mild weather, Bloomberg Intelligence said in a statement.

However, the proposed EU price cap – without an associated demand cap – risks worsening the region’s gas supply deficit by boosting consumption, analysts at Goldman Sachs Group Inc. said in a report. That could strain the global market next year and, in the worst case, force governments to ration gas.

The pipeline explosion report also indicated that traders remain nervous. Even with above-average inventories providing some buffer, Europe is still vulnerable to severe cold snaps or prolonged supply disruptions. Russia has gradually halted shipments to Europe via other key routes following its war in Ukraine and in retaliation for Western sanctions against President Vladimir Putin’s regime.

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Short-term weather forecasts pointing to above-average temperatures during the holiday season and hopes of a nuclear recovery in France are pushing energy prices lower for the time being, Alfa Energy analysts said in a statement. “However, the constant movement of weather models still creates volatility in the markets.”

WEATHER IN EUROPE Cooling temperatures on the continent next week

The Dutch front-month gas contract, a benchmark for Europe, was trading 1.7% lower at €106.70 per megawatt-hour as of 4:30 p.m. in Amsterdam. It is heading for a third day of declines after earlier rising as much as 6.6%. The UK equivalent fell 1.4%.

—With the support of Anna Shiryaevskaya.