Bearish effects of Russian gas flows prove short-lived

Friday 19th November 2021

As has been the case for many months now, the subject of Russian gas flows remains the main discussion point in the wider energy crisis. The flows to fill Western Europe’s gas storage facilities started last week, and this had an immediate bearish effect on prices – the arrival of Russian gas de-risked the coming winter months and it seemed as though this was the start of a much needed downturn. The reversal turned out to be very short-lived; earlier this week, the German authorities suspended the sign-off on the Nord Stream 2 gas pipeline. Russia’s preference is to use this new pipeline and thus avoid the route through Ukraine which saves large transportation payments. Using the Ukraine route also undermines Russian animosity to its neighbour. The sign-off suspension cause a renewed hike in prices, with Russian flows still well below hoped for levels. Europe’s gas storage is at 75%, down on 92% this time last year, so with the gas flow delay, risk for the coming winter rises. The EU-Belarus (and by extension –Russia) discord over migrants does not help the heightened East-West tension.

Other impacts on the wider energy complex have come from French power workers striking. We have also had more cold weather forecasts in recent days, coupled with much lower wind generation output – this has led to increased gas demand and thus higher carbon prices.

It is not all gloom within energy however, with Norwegian gas production increasing and a welcome increase in LNG shipments to Northern Europe. There was also better news on the France-UK electricity interconnector that was knocked out by fire – this is now due to come back online next winter, sooner than the 2023 expectation mooted in October. Energy prices have been kept in check by oil dropping off its recent highs – expectation that the US will release emergency reserves has sent Brent below the symbolic $80 marker.