Russian natural gas flows to Europe surge in August on power, storage demand
Russian natural gas flows to western and central Europe recovered strongly in August — after a dip in July because of pipeline maintenance — as demand for Russian gas remained buoyant to meet demand from both the power and storage sectors, an analysis of S&P Global Platts Analytics data showed Monday.
Russian deliveries are also likely to remain high in the coming months as oil-indexed contract prices continue to be competitive versus European hub prices, prompting buyers to nominate more Russian gas now than later in the year when it becomes more expensive.
Russian gas flows via its three main pipeline routes to western and central Europe totalled 11.64 Bcm in August, the highest monthly level since May, according to the data from S&P Global Platts Analytics.
Russian deliveries have been strong all year, and in the first eight months of 2018 totaled 86.74 Bcm, 1.5 Bcm up on the same period last year.
Supplies via the Nord Stream pipeline totaled 4.9 Bcm last month — or an average of 158 million cu m/d — as the link returned to full capacity after its annual two-week maintenance period in the second half of July.
Flows via the Yamal-Europe pipeline at the Mallnow interconnection point to northwest Europe were also effectively maxed out in August, totaling 2.64 Bcm — or an average of 85 million cu m/d.
With both the northern routes running at full capacity, it was again the route via Ukraine at the Velke Kapusany point on the border with Slovakia that took the swing.
Russian gas exports through Velke Kapusany totaled 4.1 Bcm in August — back to the stable level in the months of March through June.
Only in July did Velke flows flex upward — to a six-year monthly high above 5 Bcm — due to the maintenance on the Nord Stream and Yamal pipelines.
Gazprom’s own sales data — which comprise volumes sold to customers, including from storage, not just physical export volumes — showed an increase to 133.3 Bcm in Europe and Turkey in the first eight months of the year.
In a statement Monday, Gazprom said supplies to several selected European countries increased in the first eight months of 2018 (see table).
Gazprom’s supplies to the Far Abroad hit a new record high of 194.4 Bcm last year, and are on track to break through the 200 Bcm level if current supply rates are maintained.
CEO Alexei Miller said last month supplies to Europe and Turkey were set to reach the maximum foreseen in all of its contracts combined this year and that total sales could reach “205 Bcm or more.”
Demand for gas across Europe remains strong. Europe’s gas-fired power generation rose in the second half of August on falling wind, low hydro stocks and reduced nuclear availability, which sent gas-for-power demand higher and signaled an increase in demand for carbon allowances.
European gas storage injections also remain strong, with injections across the EU staying in the high 300 million cu m/d range through August, according to Platts Analytics.
But pricing will likely be the most significant factor in determining how much Russian gas is sold in Europe and Turkey over the remainder of 2018.
The range of 85-100% oil-indexed contracts is estimated at Eur19.64-23.11/MWh for September, according to Platts Analytics.
The TTF price for September, by comparison, is considerably higher at just under Eur26/MWh, according to Platts assessments Friday, after a European gas price rally in recent weeks triggered by the tight system and high demand for storage refill and gas-fired generation.
But oil-indexed contracts are set to become significantly more expensive in the coming months themselves, with the top of the range reaching close to Eur26/MWh in Q1, indicating a stronger price incentive to purchase Russian gas ahead of Q1 2019.
Oil-indexed contracts are in contango until April 2019 at which point the curve begins to dip again. But the oil-indexed price remains cheaper than the TTF gas for the entire Q4 and Q1 2019 period.