The supply of Russian gas has suffered a major setback this week. As a result of the war, Ukraine has no longer been able to supply supplies through the Lugansk region. About a third of Russian exports to Europe go through that hub. The supply of LNG will continue unabated. How does the market process these windfalls and setbacks?
The natural gas quotation on the TTF futures market was just above €100 per MWh at the end of last week. A small step has now been taken, to just below the limit of €100 per MWh. However, that is and remains a very high price for this time of year. The price usually does not exceed €25 per MWh in May. In May 2020 - amid the corona crisis - the price even dropped below €5 per MWh.
The vicissitudes surrounding gas supplies from Russia are the driving force behind the high gas prices. A new chapter could be added this week. Yesterday (May 10), grid operator GSTOU in Ukraine announced that it is no longer possible to transport Russian gas via the infrastructure in Sokhranivka and Novopskov. GSTOU invokes force majeure as a result of the Russian military actions in the area. Both pumping stations are located in the Lugansk region and are "temporarily under the control of the Russian army and occupation forces," GSTOU writes on the website.
As of today (11 May), gas can therefore no longer be supplied via that route. About 33% of all the gas that Europe exports from Russia – up to 32,6 million cubic meters per day – passes through one of the aforementioned nodes. The Russian state gas company Gazprom also reports that it sees no evidence of a force majeure situation and still says that it (can) fulfill its obligations to European customers.
Dip in supply is more than made up for
The German energy market regulator reported earlier today that gas supplies via the Czech Republic fell by 25%. This is a direct result of the problems in Lugansk mentioned above. The decline in supply from the east is more than compensated for by a larger supply from the Netherlands and Norway, according to the regulator. The filling level of the German surcharges stands at 38,8% this week. In the same period last year it was 26,4%.
In addition, a very good supply of LNG ensures that the quotations for gas do not rise further. According to various sources, European LNG terminals are having great difficulty handling all ships quickly. Some terminals are already operating above planned capacity. A final factor that favors Europe is the weather. Due to relatively high temperatures, there is less demand for gas and that helps to build up the stock. As it stands, the European Union is on track to meet the target of a minimum fill rate of 85% by the end of summer/beginning of autumn.