EU gas supply fears intensify as Russia further cuts supplies

August 5, 2022

1 mins read

Gas supplies from Russia via the Nord Stream 1 pipeline have continuously declined over the past month, running well below capacity. As a result, supply fears have intensified, driving EU natural gas prices higher. The price of natural gas reached GBP 480.5/100 therm on the 1st of August 2022, up 30% week-on-week (w-o-w) and 337% year-on-year (y-o-y). Russian energy firm Gazprom announced a reduction in gas flows into Germany to reportedly allow for technical works on a turbine on the Nord Stream 1 pipeline. Supplies are estimated to have been cut to 20% of total capacity. Additionally, Russia has halted supplies to Poland, Bulgaria, Finland and various Dutch and Danish companies (including Shell energy group and Orsted) in retaliation to sanctions. On the 30th of July, Gazprom announced that supplies had also been cut to Latvia after violating supply conditions and many market participants expect a full Russian gas halt prior to winter.

The challenge across Europe is to accelerate the energy transition to alternative sources to make up for the shortfall prior to the winter months, where demand is expected to pick up again. The EU aims to build up enough gas to reach 80% of storage capacity before this winter to support demand and ease the upward price momentum. However, according to market participants, Europe’s underground storage caverns are currently only 60% full.

In response, the EU set out emergency plans on the 20th of July requesting that countries voluntarily cut their gas use by 15% compared to average until March 2023, with some exemptions. The plan is expected to help increase buffer stocks, to prepare for winter months. The plan is to draw from these reserves during winter, as heating demand rises. Countries including Ireland, Malta and Cyprus are exempt as they are not connected to the EU's gas pipelines.

Alice Witchalls
Alice Witchalls

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