EU natural gas prices tumble as Russia plans to send more fuel

Anna Shiryaevskaya and Elena Mazneva 10/28/2021

MOSCOW (Bloomberg) --European natural gas and power prices dropped after more signals from President Vladimir Putin that Russia will send extra gas to the continent next month.

The Russian leader ordered Gazprom PJSC late Wednesday to focus on filling its European storage sites from Nov. 8, a day after it completes the process in Russia. He said the move should ease supply tightness in Europe, where high prices are squeezing industry and fueling inflation.

It’s the latest intervention in the market from Putin to talk down gas prices, even as some European officials suspect he’s been holding back supply to pressure Europe into approving Nord Stream 2, the controversial new pipeline linking Russia to Germany. Russia is also concerned that excessively high prices could destroy demand, and would like to see them fall by about 60%, according to people familiar with the situation.

Higher Norwegian gas flows and a drop in Chinese coal prices are also putting downward pressure on prices, Engie EnergyScan said in a note. Norway’s Equinor ASA promised Wednesday to boost exports. Maintenance at its giant Troll field in December will be shorter than previously planned, system operator Gassco said Thursday, also a bearish factor.

Tom Marzec-Manser, an analyst at pricing agency ICIS, said the timing of Putin’s comments on adding fuel to Gazprom’s storage sites in Germany and Austria could be connected to Germany’s Economy Ministry saying on Tuesday that certification of Nord Stream 2 wouldn’t pose any risks to security of supply.

That move “will have been received positively in Moscow as it brings the new pipeline one step closer to operation,” he said. “We still don’t know how much extra gas could arrive from Nov. 8 in response to President Putin’s instructions. So a certain amount of risk needs to remain until flow profiles change.”

Russia’s supply response should have come “a long time ago,” according to Amos Hochstein, senior adviser for energy security at the U.S. Department of State. Speaking at the online IEF gas forum, he stressed that it is suppliers’ responsibility to make sure the markets are balanced.

While benchmark European gas has halved after reached a record earlier in October, there’s still concern that prices could soar again in the event of a cold winter as supplies from Russia remain capped and competition with Asia for cargoes of liquefied natural gas is intense.

In addition, supply disruptions at global LNG facilities persist, which will affect trading earnings for global giants such as Royal Dutch Shell Plc through the winter.

Dutch front-month gas closed 11% lower at 77.032 euros a megawatt-hour. The U.K. equivalent declined 12% to 192.09 pence a therm.

German power for next month and the first quarter of next year fell by 14% and 12% respectively. Carbon emissions also fell the most in a week, improving fossil-power generation margins.

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