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A summer gas supply crisis in Europe, made in Russia
Citing technical faults, safety concerns, and sanctions, Russia's technical regulator reduced the operational capacity of the Nord Stream pipeline by 60% on 16 June. This has reduced pipeline deliveries of Russian gas to the EU by about 35% to unprecedented low levels.
Saying what many were thinking, German minister of economy and climate Robert Habeck has called the technical issues "a pretext" and accused Russia of seeking to drive up prices and destabilize the gas market.
It is likely that Nord Stream capacity will be restricted at least through 11 July when the pipeline is scheduled to shut down for 10 days for annual maintenance. Further "technical issues" that extend this shutdown cannot be ruled out.
The Nord Stream outage will affect gas supply to most of Europe, not only to Germany. Hopes that TTF prices would settle in a range of $20-25/MMBtu during the summer—this was our forecast, which will now be revised—have been dashed, and TTF prices in the $30s can be expected until Nord Stream is back to full capacity.
Gazprom could—but will not—increase supply via Ukraine to offset the Nord Stream outage. Its failure to meet buyer nominations will put a further strain on its contractual relationships and could lead to force majeure discussions, with uncertain outcome and impact.
The likely goal of Russia's latest gambit is to disrupt the refill of gas storage in the EU—which had been proceeding well—and weaken Europe's position in any potential confrontation heading into winter. We continue to believe that any Russian effort to play the gas card to achieve political objectives would happen in October or November, not in summer; this casts the Nord Stream outage as prelude rather than main event.
Will the current situation—or the more serious one that will arise when Nord Stream closes fully for maintenance—prompt the Dutch government to lift its cap on production at the giant Groningen field? Perhaps.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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