Europe is facing very real fears it may struggle to build up storage of gas for the winter, due to a confluence of factors, including Russia blocking gas flows through the Nord Stream I pipeline to Europe, an early heat wave flowing across the south, and reduced US gas supplies due to a fire an an LNG export terminal in Texas.
The pipeline, which crosses the Baltic Sea from Russia to Germany, provides roughly 40% of all pipeline supply to the EU. However on Friday, Italy and Slovakia have said they are receiving under 50% of the usual volumes through the pipeline. France announced that since June 15th, it has received no gas from the pipeline. Meanwhile Russia’s state oil company, Gazprom, announced that it would be cutting the supply of gas to Germany by 60% as well. Germany has said the lower volumes could be made up with supplies from other sources such as the Netherlands or Norway.
On Friday, Italy’s Eni, an Italian multinational oil and gas company headquartered in Rome, said Russia was delivering only half of the 63 million cubic meters per day it had requested from Gazprom. Italian Prime Minister Mario Draghi lashed out at Russia, calling the reduction in supply political retaliation for his recent visit to Ukraine with his French and German counterparts.
Russia said in a response the supply cuts were not political, but rather were related to the delayed return of equipment sent to Canada for maintenance, which the Canadians have refused to return, saying the return would violate international sanctions against Russia.
Every year, Italy aims to fill the country’s gas storage to at least 90% capacity for the winter season. This year they are only at 54% so far. Normally they would source 40% of that gas from Russia.
Storage levels across the EU have been able to make up some of the difference so far this year due to strong LNG imports. EU inventories are presently 52% full, which is above the 43% seen last year at this time.
Analysts at ING Research who examined the situation said, “However, a prolonged outage will raise concerns over the ability of the EU to build enough storage going into the next heating season.” They noted it was a worrying sign that for the first time since April, storage levels declined this week.
Part of the problem was an early heat wave spreading across Spain and France, causing more gas usage to generate the electricity for air conditioners. Gas usage for electrical generation in Spain on Wednesday was greater than any other day since records began.
Making things worse, Nord Stream 1 is scheduled for annual maintenance between July 11th and 21st, which will completely halt all flows.
It is possible Gazprom could bypass the restriction in Germany they say is due to the embargoed equipment, by shipping their gas through Ukraine, but there is no sign they are doing that yet.
Meanwhile, the United States had been a crucial source of LNG for Europe. However a fire at a major LNG export terminal in Texas will shut down all exports until September, and even then, once operational again, it is believed it will only be partially functional until the end of 2022.