European Gas Prices Fall 30 Percent, Russia’s Gazprom Signals Uninterrupted Deliveries

The tanker Sun Arrows loads its cargo of liquefied natural gas from the Sakhalin-2 project in the port of Prigorodnoye, Russia, on Oct. 29, 2021. AP Photo

European gas prices, which aggressively rose on Thursday, fell on Friday as Russian energy giant Gazprom indicated that gas exports are continuing without interruptions despite the turmoil created by Moscow’s invasion of Ukraine.

Dutch TTF Gas Futures March contract closed at 134.316 euros on Feb. 24, jumping up 51.1 percent from the previous day’s close of 88.891 euros, according to data from the Intercontinental Exchange. On Feb. 25, gas futures were trading at 93.800 euros as of 04:10 PM GMT, a decline of 30.16 percent from the previous day’s close. Dutch TTF gas futures are seen as a benchmark natural gas indicator in Europe.

On Thursday, Gazprom had indicated that the situation of gas exports via Ukraine was normal and in line with requests from customers. Requests for gas rose to 83 million cubic meters per day on Feb. 24, up 31.4 percent from the previous day, the company said.

Despite Gazprom’s assurances, energy markets are lingering amidst a highly volatile situation. Dutch TTF gas futures are up by around 20 percent for the year, threatening to break through the 166.816 euro level it had hit on Dec. 21.

Even though the European Union (EU) has announced sanctions against Moscow, the bloc is yet to impose any restrictions on Russia’s oil and gas exports.

Moreover, European utilities are buying additional gas from Russia, most of which is transported via the pipeline network which passes through Ukraine. As Russian gas imports became cheaper, European firms placed more orders with Gazprom for a second consecutive day on Feb. 24. Russia’s gas supplies via Ukraine spiked by 38 percent on Thursday.

At present, gas prices are “well above the likely sales price for many Gazprom import contracts and so driving purchases higher,” said Stefan Ulrich, a gas analyst with BloombergNEF. “There may also be a strategic component as buyers seek to buy now given a potential for disruption in flows or further price increases.”

Even if EU member states want to take strict action against Russia’s energy sector, it is in no position to do so since the region is heavily dependent on Moscow for natural gas. Roughly 40 percent of the EU’s natural gas imports are accounted for by Russia. Almost a quarter of EU’s petroleum oil imports come from Russia as well, making the country the largest supplier to the region.

As such, any action against Russia’s oil and gas sector will impact Europe severely. Curbing Russia’s access to foreign currency will also put upward pressure on energy prices.

“If the West were to decide to cut Russia off from SWIFT (international payment network), payments for Russian gas supplies would become impossible,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies.

“That would be a cause for contractual force majeure leading to a halt in supplies, with dramatic consequences for European consumers from physical availability and price perspectives.”