WOOD Flash – EME Macro/Strategy: forecasts – Gazprom does not restart pipeline as planned

Following the G7 announcement of an oil price cap, the tensions between Russia, the EU and the US have escalated further. On Saturday (3 September), Gazprom did not restart, as planned, the Northstream1 pipeline, stating that maintenance has not been completed yet, and did not release a target date for restarting it. If the gas halt continues permanently, it would move Europe towards scenario 2 that we have been flagging in recent months, meaning a 3% GDP recession in Europe and significant rationing of natural gas being necessary. Russian gas supplies (“east”, in the chart below) already started a significant declining trend in May, after a year of much lower flows than the historical average. In our view, current events are set to widen the relative spread between the direction of oil and natural gas prices: while a weakening in demand, reflecting the current GDP trends, will affect the oil price negatively, uncertainty in the gas market and a lack of supply is set to keep the price high, or push it even higher. As of now, we remain of the view that Russia will keep switching gas supply on and off in the coming months, without halting supplies permanently, but a deterioration remains possible.