Ukraine disrupts gas deliveries to Europe for the first time
Ukraine, a key transit country for Russian gas has disrupted gas deliveries to Europe for the first time, declaring force majeure yesterday afternoon.
While alternative pipelines can take a significant amount of the lost capacity, this is another cut in Europe’s ability to import Russian gas.
Bulgaria and Poland are already cut off from Russian supplies and with the key transit Sokhranivka pipeline now closed, up to a third of Europe’s gas supplies could be disrupted.
As previously stated, the most realistic scenario of a complete halt in gas exports from Russia to Europe would be if infrastructure were attacked, yesterday’s decision is a small preview of what might happen if gas installations are hit by live fire and face the risk of extended downtimes.
The knock-on effect of removing a further pipeline from Europe’s gas grid and the loss of 10 mcm/d of gas flow per day will make it harder for countries to meet their storage targets and hasten Europe’s plans to move away from imports of Russian gas.
As the European gas grid is well integrated, no one country is likely to suffer any immediate impact, but this will put further strain on the system and place a floor on downside price movement.
Ukraine’s TSO (GTSOU) declared force majeure yesterday afternoon over the key transit pipeline Sokhranivka that runs through Russian occupied territory in the east of the country.
One third of Russian gas flows into Europe could potentially be impacted, equivalent to 33 mcm/Day. European natural gas prices (TTF) briefly approached $34 per million British thermal units (MMBtu) consequently.
Fluctuations in the market are expected, and the TTF started the day with an 5% increase but has since gone back down to 1% below yesterday's closing levels.
According to the force majeure statement, GTSOU, which operates Ukraine’s gas sector, cannot carry out operational and technical security at the gas measuring point “Sokhranivka” in the Luhansk region.
The lack of stability and safety via the Sokhranivka pipeline means the GTSOU cannot put current transit contracts through the route without risk.
No offtake gas was seen as of this morning, 7am on May 11th 2022 at Sokhranivka.
Gazprom will now need to use other pipelines to deliver natural gas to Europe, such as the Sudzha pipeline, which also runs through Ukraine and holds a contracted gas capacity of 77 mcm/d.
Currently, the daily gas flow via Sokhranivka is averaged at about 23 million cubic meters (mcm) per day in May 2022 that is 20% lower than the flow in the previous month.
Daily flows via Sudzha have significantly recovered to the same level in Dec 2021 and March 2022, averaging 70 mcm per day in May.
The contracted gas transit capacity at Sudzha based on the existing transit contract of 77 mcm per day, would allow approximately 7 mcm/d volume addition once the gas flow at Sokhranivka is halted.
However, based on the historical flow record, another 6 mcm/d on top of that capacity may be added.
This leaves 10 mcm/d of gas flow that will still need to be re-directed via other pipeline routes. Where exactly is not clear as capacity is seemingly full.
Despite the closure of a pipeline, market players appear to have eased their primary concern around payments in rubles.
High LNG imports and warm weather forecast in NEW Europe together with higher wind generation for the next week are also providing some downside risk to prices.
Norwegian gas flows have ramped up again today, after an unplanned outage at Kollsnes. The sum of exit nominations is today at 315 MMcmd, up 1.9% from yesterday.
Hammerfest LNG at Melkeøya is expected to restart next week after an unplanned outage since January 2020, has held back capacity of 18.4 Mmcmd.
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