Russia Keeping the Pressure on European Gas Prices

Europe’s current inventory trajectory looks very healthy, with storage on track to exceed the European Commission’s Oct-1st 80% fill target if Russian gas exports continue around the current trend. That “if” is critical however, especially as Russian actions (cutting off some customers and former subsidiaries from Russian gas and placing the operator of the Polish section of the Yamal pipeline under sanctio n) rachet up the tension between exporter and importer. Although the headlines have been dramatic, viewed in isolation, these actions are relatively minor in terms of the volume of gas disrupted and ultimately removed from Europe’s gas balance. We think Russia is incentivised to keep prices high via small scale announcements that call into question the future of the gas trade, supporting TTF prices, whilst keeping most gas flowing. As such, inflammatory statements and provocations are unlikely to slow down in the coming week s and months. With this in mind, there are several upcoming flashpoints that will support TTF. F urther cut-offs of legacy contract holders from Russian gas are likely in the coming weeks as a new payment deadline passes at the end of May. Also, Nord Stream 1 undergoes major maintenance every July, with flows historically diverted via Yamal. With no ability to divert flows following sanctions on Europol Gaz S.A , Gazprom may be forced to either fail to meet customer nominations or buy gas from hubs to supplement residual flows via Ukraine . Although the continuation of Russia’s gas flows through the summer remains our base case, the risk of a full shut-off is rising (along with upside risk for our TTF forecast). We see this risk arising primarily as a retaliatory measure as EU ministers make progress towards agreeing the terms of a bloc-wide oil embargo. Russia’s response to Finland’s announced intention to join NATO further confirms the willingness to weaponise energy flows. We maintain our prior price forecast, with TTF expected to average ~€102/MWh in 2022 and ~€85/MWh in 2023.