Power of the Gas Weapon Is Rapidly Declining

Oil & Gas

The key feature of Russia’s politicization of gas flows in recent months has been its lack of success.

That’s what analysts at Standard Chartered think, according to a new report from the company sent to Rigzone this week.

“The power of the gas weapon is rapidly declining as inventories rise and Russia’s share of the market continues to contract,” the analysts stated in the report.

“EU natural gas inventories have continued to rise over the past week, increasing by 2.28 billion cubic meters (bcm) week on week to 75.9 bcm, just 1.04 bcm below the five-year average,” the analysts added in the report.

“The pace of fill has slowed slightly, with infill at a rate of 0.33 bcm per day over the past week, although the July to date average of 0.41 bcm per day is greater than the five-year average rate for the same period of 0.35 bcm per day despite low flows from Russia,” the analysts continued.

In the report, the analysts noted that, if gas deliveries through Nord Stream 1 were to remain compromised at just 20 percent of maximum throughput, EU gas imports would fall by just three percent, “reducing Russia’s share of flows into the EU to about 12 percent”.

“If all other things were equal, the cut from 40 percent to 20 percent capacity through Nord Stream would reduce EU inventories at the usual early-November start of the withdrawal period by 3 bcm; zero flows through Nord Stream would reduce the inventory by 6 bcm,” the analysts stated in the report.

“However, we would expect most of the gap to be filled by additional flows from elsewhere and by lower demand stemming from higher prices. We do not think that the Nord Stream cuts will significantly reduce the probability of EU inventories reaching a comfortable level above 100 bcm,” the analysts added.

In a separate report sent to Rigzone last week, analysts at Standard Chartered outlined that Nord Stream 1 flows could be cut to 20 percent “as threatened by President Putin on 20 July”. The analysts also noted in that report that European natural gas inventories had continued to rise over the past week.

Rystad Energy Analyst Karolina Siemieniuk said in a Rystad note on Tuesday that even though Kremlin press secretary Dmitry Peskov stated that a complete halt of gas supply to Europe is not planned, “the statement is not overly reassuring for European countries”.

“Right now the situation appears a never-ending game with Russia calling the shots. The uncertainty and confusion over Russian flows and their disruption is not going away soon and will therefore continue to support and push up gas prices,” Siemieniuk stated in the note.

In a previous statement sent to Rigzone last week, Siemieniuk warned that “flows on Nord Stream 1 are by no means certain”.

To contact the author, email andreas.exarheas@rigzone.com

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