HomeLatest NewsEuropean gas prices rise as Russia announces Nord Stream 1 shutdown

European gas prices rise as Russia announces Nord Stream 1 shutdown

Russia has drastically cut natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 pipeline currently operating at just 20% of agreed volumes.

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European natural gas prices rose on Monday after Russian state-owned energy giant Gazprom said it would shut down Europe’s single-largest gas infrastructure for three days starting at the end of the month.

Unscheduled maintenance work on the Nord Stream 1 pipeline, which runs from Russia to Germany via the Baltic Sea, deepens the gas dispute between Russia and the European Union and raises the risk of recession and winter shortages.

Next month’s gas price The Dutch TTF hub, a European benchmark for natural gas trading, jumped 19% on Monday to 291.5 euros ($291.9) per megawatt hour.

The contract closed at a record high of 244.55 euros per megawatt hour on Friday, registering its fifth straight weekly gain.

Gazprom said on Friday that the pipeline’s only remaining compressor was shut down due to servicing needs. Gas flow through the Nord Stream 1 pipeline will be suspended for three days from August 31 to September 2

Gazprom said it would resume gas transmission at a rate of 33 million cubic meters per day once the maintenance work is completed “if no faults are identified.”

The announcement of the temporary shutdown comes as European governments scramble to fill underground storage facilities with natural gas supplies to have enough fuel to keep homes warm in the coming months.

Russia has drastically reduced natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 pipeline currently operating at just 20% of agreed volumes.

Moscow has previously blamed faulty and delayed equipment for sharp cuts in gas supplies.

Germany, however, views the supply cuts as a political ploy designed to sow uncertainty across the bloc and drive up energy prices amid the Kremlin’s offensive against Ukraine.

Two serious risks

Until recently, Germany bought more than half of its gas from Russia. And the government of Europe’s biggest economy is now scrambling to boost winter gas supplies amid growing fears that Moscow could soon turn off the taps altogether.

What’s more, Europe’s race to store enough gas comes at a time of skyrocketing prices. Rising energy costs are driving up household bills, pushing inflation to the highest levels in decades and eroding people’s spending power.

Holger Schmieding, chief economist at Berenberg Bank, said Gazprom’s latest announcement was an apparent attempt to exploit Europe’s dependence on Russian gas.

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“On its own, a short shutdown of the pipeline would not make a big difference, especially since Russia has cut its gas exports through NS1 by up to 20% since July 27,” Schmieding said in a research note.

“But it highlights two serious risks: (i) Russia could falsely claim it can’t reopen the pipeline because of a ‘technical problem’ that can only be resolved if Western sanctions are lifted, and (ii) Russia could also shut down its pipeline. Other pipelines are later brought down to Europe,” he added.

Schmieding said even higher prices for scarce gas supplies would “exacerbate the severe recession Europe is already suffering” and warned that an immediate further cut in Russian flows would increase the chances of Germany facing winter shortages.

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