European gas prices surged on Thursday after Russia cut supplies to the continent for “technical” reasons.
Front-month Dutch gas, the European benchmark, jumped 21.5 per cent Thursday to 145.25 euros per megawatt hour, up a whopping 46 per cent this week.
The cuts are not confined to a single country; they are spread across Europe.The energy giants, including Italy’s Eni SpA, France’s Engie SA and Germany’s Uniper SE, say they receive far less gas than they need.
Italy’s Eni SpA, for example, said Gazprom supplied only 65 percent of its requested gas on Thursday.The company’s gas demand on Thursday was about 44% higher than the previous day, in part to make up for a shortage on Wednesday.
Russia: Supply cut for “technical reasons”
But Russia was “quite aggrieved”.
Kremlin spokesman Dmitry Peskov said in a conference call Thursday that the drop in gas supplies to Europe through Nord Stream was due to problems with turbine maintenance caused by sanctions:All we know is that something went wrong with the turbine, which was repaired and not returned due to sanctions.This is not intentional. This problem has nothing to do with us.
Gazprom uses a number of Siemens-made turbines in its Nord Stream pipeline to Germany, two of which are due for maintenance this year, media reports said, citing sources familiar with the matter.This equipment is used to pump natural gas into the pipe and is usually serviced every 3-4 years, with maintenance performed in Canada.
Turbines made by Siemens Energy could not be returned after repairs in Canada because of sanctions imposed in The United States and Europe.Another turbine, which also needs servicing, cannot be sent overseas for maintenance and is now in the hands of Siemens.
It is worth noting that Russia’s reduction of gas supplies to Europe for “technical reasons” coincided with a joint visit to Kiev by German Chancellor Martin Schulz, French President Emmanuel Macron and Italian Prime Minister Mario Draghi.In the highest-profile European visit to Ukraine since the start of the crisis, the three leaders will hold talks with Ukrainian President Volodymyr Zelensky in Kiev.
Europe has had a rough winter
It is unclear when Russian supplies will resume.Germany has activated an emergency plan, urging consumers and industry to reduce consumption in order to meet winter gas storage priorities.
Klaus Mueller, head of Germany’s Federal Energy Agency, said on Thursday that Germany’s gas storage was at only 55 percent of capacity, well below the 90 percent the country needs to meet its winter requirements until November.In addition to cutting back on daily consumption preferred storage, Germany is also installing more LNG terminals to increase alternative supplies.
Mueller said Germany would have about 24 hours to respond if Russia completely cut off supplies.Private consumers are less likely to turn off their heating during the winter months as the government has implemented a level-three emergency plan.
But if Russia’s supply cuts continue, Europe’s gas supply will inevitably be severely affected this winter.
Marco Alvera, former chief executive of Italian gas operator Snam SpA, warned on Thursday that European gas prices would remain very high this winter:
Gas prices are going to be high in the winter, electricity prices are going to be high in the winter.