Russian gas flows to Europe below demand, threaten storage buildup

Russian gas flows to Europe fell short of demand again on Friday, coinciding with an early heat wave gripping its south and boosting benchmark prices on concerns the continent may struggle to build up storage ahead of the winter season as planned.

Italy and Slovakia reported receiving less than half of the usual volumes through the Nordstream 1 pipeline, which crosses the Baltic Sea from Russia to Germany and accounts for around 40% of Russian pipeline flows to the European Union.

France reported it was receiving no Russian gas from Germany since June 15.

Germany’s power industry group said on Friday lower volumes could now be replaced by other sources, such as Norway and the Netherlands, but the decline was “worrying” due to the potential impact it could have on supplies during the winter months.

EU’s reliance on Russian gas and a risk that Moscow could cut it off in retaliation to economic sanctions imposed after its invasion of Ukraine has been a major headache for the bloc, prompting it to build up inventories and seek alternative supplies.

An unseasonably early heat wave across parts of Spain and France added to the concerns, prompting more gas buying as demand for electricity needed to power air conditioning spiked.

Wholesale Dutch gas prices, the European benchmark, rose as much as 9% in morning trading, while prices of power supply contracts also rose across Europe.

Italy’s Eni ENI.MI said it would receive only half of the 63 million cubic metres per day it had requested from Russia’s Gazprom GAZP.MM on Friday, after experiencing a shortfall the two previous days. Earlier, Russia’s Gazprom said it had reduced gas supply to Germany via the pipeline by almost 60%.

Italian Prime Minister Mario Draghi, who visited Ukraine together with his French and German counterparts on Thursday, accused Moscow of using its gas supplies for political reasons.

Kremlin, however, said the supply cuts were not premeditated, blaming the sanctions for a delay in return of equipment sent for maintenance to Canada.

Canada said it was in talks with Germany to resolve an issue with a Siemens Energy ENR1n.DE turbine for the pipeline, which was serviced there.

HEAT WAVE DEMAND

Italy, which last year sourced 40% of its gas imports from Russia, aims to have the country’s gas storage at least 90% full for the winter season, up from 54% now.

Across Europe, storage levels have recovered this year thanks to strong liquefied natural gas imports. Inventories for the EU as a whole are currently at 52% of capacity, just below the five-year average and above the 43% seen a year ago, said analysts at ING Research.

“However, a prolonged outage will raise concerns over the ability of the EU to build enough storage going into the next heating season,” they said. They said in a “worrying” sign, storage levels fell this week for the first time since April.

In Denmark, the country’s energy agency said that while it could continue to fill stocks, it was happening at a slower pace due to reduced gas deliveries.

With temperatures soaring, Spanish power plants bought more gas to generate electricity on Wednesday than any other day since records began, transmission system operator Enagas said.

Gazprom could increase flows via Ukraine to make up for the Nord Stream shortfall but there has been no sign of it doing it yet. Added to that, flows via the Yamal-Europe pipeline have been flowing eastwards for several months rather than the usual westerly direction to Germany.

Nord Stream 1 is also scheduled for annual maintenance between July 11 and July 21 which will halt all flows.

The United States has been a crucial LNG exporter to Europe for months. But a blast last week at a major LNG export terminal in Texas will keep it idle until September and it will operate only partially from then until the end of 2022.

The facility, which accounts for about 20% of U.S. LNG exports, has been a major supplier to European buyers.