LONDON, June 17 (Reuters) - Benchmark European and British
gas prices are on course for gains of more than 50% this week
after Russia said capacity of its Nord Stream 1 pipeline, which
take gas directly to Germany, would be cut by around 60%,
dramatically reducing European gas supply.
Below are some of the factors explaining the impact of
Russian supplies on Europe's gas markets, even those that do not
rely on Russian gas directly.
HOW MUCH GAS DOES RUSSIA SUPPLY?
Europe has historically relied on Russia for around 40% of
its natural gas, most delivered through pipelines including
Yamal, which crosses Belarus and Poland to Germany, Nord Stream
1, which runs directly to Germany, and pipelines through
A network of interconnecting pipelines links Europes
internal gas markets.
Not all countries get gas directly from Russia, but if
countries such as Germany, Europe's top buyer of Russian gas,
receive less, they must fill the gap elsewhere, for instance
Norway, which has a knock-on effect on available gas for other
As a result, changes in Russian supplies can cause as much
gas price volatility in Britain as the rest of Europe, even
though Britain typically gets less than 4% of its gas from
Russia. Lower Russian supply means less could be available from
its largest supplier Norway.
WHAT IS HAPPENING NOW?
Russia already began reducing flows to Europe in the second
half of 2021, with flows through the three main pipeline routes
down around 20% compared with the second half of 2020.
European gas prices soared in 2021, as supply failed to keep
pace with demand driven by the recovery from the coronavirus
Despite lower flows, Russian state-owned gas monopoly
Gazprom said it was fulfilling all its long-term
contracts, and European companies contacted by Reuters last year
confirmed contractual obligations had been met.
That changed after Russias invasion of Ukraine, an action
Moscow called a "special operation."
This year Moscow has already cut gas flows to Bulgaria,
Poland, Finland, Danish supplier Orsted, Dutch firm
Gasterra and Shell for its German contracts, after they all
rejected a Kremlin demand to switch to payments in roubles a
move in response to European sanctions.
Several companies such as Germanys Uniper and
RWE and Italys Eni made payments under
Russias new scheme and continued to receive gas.
But many companies, including Uniper and RWE have now seen
their supply curbed after Russia cut the capacity of the Nord
Stream 1 pipeline.
While Italian Prime Minister Mario Draghi accused Moscow of
using its gas supplies for political reasons, Russia said supply
reductions were necessary because of the delayed return of
equipment that had been sent for repair.
Gas flows from Russia through the three main pipelines have
plummeted 26% in June compared with May to an average of around
1,771 gigawatt hours a day (GWh/d), Refinitiv Eikon data showed.
The Nord Stream cut has sent European and British gas prices
WHAT ABOUT THE ALTERNATIVES?
The European Union aims to end reliance on Russian fossil fuels
by 2027 and has begun looking for alternatives, such as by
increasing imports of global liquefied natural gas (LNG).
LNG imports rose about 58% in the first five months of 2022
compared with 2021 levels, Refinitiv data showed, reflecting
more capacity in the United States and high prices in Europe
attracting more cargoes.
But Europe has limited capacity to receive LNG and supply
concerns deepened further after Freeport LNG, operator of a
major U.S. export plants, said on Tuesday it would take at least
90 days to resume partial operations after an explosion last
(Reporting by Susanna Twidale
Editing by Tomasz Janowski)