EU Gas Surges on Disturbance to Russian Shipments 

(Bloomberg) --

Europe faces a tightening squeeze on natural gas supplies after Russian flows through transit routes fell and Algeria stopped some shipments to Spain.

The market was roiled in early trading, with benchmark gas futures surging as much as 15% before paring gains, as Russian gas started flowing eastward from Germany to Poland, while pipeline damage in Bulgaria also impacted shipments from Gazprom PJSC to some parts of Europe. Spain was also receiving less gas after a 25-year transit deal to ship Algerian volumes via Morocco expired. 

European gas futures have broken record after record this year, as Russia capped flows to the region just as cargoes of liquefied natural gas were diverted to Asia. Soaring energy costs helped send euro-zone inflation to a 13-year high in October, fueling concerns about an economic slowdown. President Vladimir Putin has promised more gas supplies to Europe, but that has yet to materialize.

“Gas prices are currently all about signals and especially those being sent from Russia,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. The market is “in flux and still very worried.”

Dutch front-month gas closed up 1.2% at 65.62 euros a megawatt-hour after surging as high as 74.35 euros earlier with some traders off for holidays. The equivalent U.K. contract added 0.9% to 167.47 pence a therm after jumping as much as 14%. 

Russian gas shipments entering Germany’s Mallnow compressor station dropped to zero on Saturday, according to data from grid operator Gascade. The Yamal-Europe pipeline was instead sending volumes eastward from Germany to Poland, and those flows increased further on Monday. 

Flows through Yamal-Europe, one of several routes used to deliver Russian fuel to the region, were already expected to be capped this month after Gazprom booked only 35% of the monthly capacity offered at Mallnow. The reverse shipments, however, left traders scratching their heads after Putin signaled a potential increase in supplies from Nov. 8, when Russian storage sites will be full.

The reverse flows, which are not unusual, according to Gascade, suggest Poland is ordering more gas from the west. That’s leaving less available for Germany, which also receives its fuel via a Baltic Sea pipeline from Russia.

Gazprom said it was meeting requests from its European customers in full, while the Polish network operator Gaz-System said on Sunday that there was no demand for gas transit toward Germany. 

In Bulgaria, grid operator Bulgartransgaz said it is working to recover the damaged section of the transit pipeline “as soon as possible.” Yet, the duration of the outage, which impacted Russian gas shipments through that route to Romania, as well as Serbia and Hungary, is unknown, the Bulgarian company said.

Russian gas transit to the European Union via Ukraine also dropped, its network operator said Monday. 

Traders will be watching closely for any signs Russia will top up shipments this heating season. Auctions on Tuesday for pipeline capacity to move Russian gas via Ukraine and Poland will provide clues as to whether Gazprom intends to boost supplies in the first three quarters of 2022.

Spain, which has limited connections to other European countries, was also facing a supply crunch. Algerian President Abdelmadjid Tebboune ordered a halt to gas flowing to Spain via Morocco amid a diplomatic spat between the two North African nations. He also told state-run energy company Sonatrach not to renew its transit accord with Morocco.

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