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LONDON: European gas buyers, already grappling with record-high prices, face further pain when markets open on Monday after Russia announced one of its main supply lines to Europe would remain closed indefinitely, raising fears over energy rationing triggers.

Lower gas flows from Russia before and after February’s invasion of Ukraine have already pushed European prices up nearly 400 percent in the past year and pushed up electricity costs.

Europe has accused Russia of arming energy supplies in what Moscow has dubbed an “economic war” with the West over the fallout from the Ukraine conflict, while Moscow blames western sanctions and technical problems for supply disruptions.

The Nord Stream pipeline, which runs under the Baltic Sea to Germany, has historically provided around a third of the gas exported from Russia to Europe, but was already running at just 20 percent of capacity before the flow was halted for maintenance last week.

Expectations were high that Russia’s state-controlled energy giant Gazprom would resume flows at 20 percent after the recent disruption, causing Dutch TTF benchmark gas prices to fall around 40 percent from a record high on August 26 and on Closed Friday at just over €200 per MWh.

But after Russia scrapped a Saturday deadline for resuming flows and said it spotted an error during maintenance, prices are likely to rise again, analysts said.

“On Friday … the market was already pricing in the return of Nord Stream 1 (NS1) flows,” said Energy Aspects gas analyst Leon Izbicki. “We expect a much stronger opening for the TTF on Monday.”

Sky-high electricity costs, combined with soaring gas prices, have already forced some energy-hungry industries, including fertilizer and aluminum producers, to cut production and prompted EU governments to pump billions into programs to help households.

The impact of the recent cut would depend on Europe’s ability to attract gas from other sources, said Jacob Mandel, a senior associate in commodities at Aurora Energy Research.

“It’s hard to get supplies and it’s getting harder and harder to replace every bit of gas that doesn’t come from Russia,” he said.

After Russia’s invasion of Ukraine, Europe quickly launched plans to reduce its dependence on Russian fuel, switch to alternative suppliers of gas and other fuels, and accelerate the deployment of clean energy sources.

Germany has started developing LNG terminals to enable it to source gas from global suppliers and break away from Russian gas imports.

“There is plenty of scope for now to replace this (Russian) gas with LNG imports, but when the weather gets cold and winter demand starts to pick up in Europe and Asia, there is only so much LNG out there that Europe can import. ‘ said Mandel.

Klaus Mueller, president of the Bundesnetzagentur’s energy regulator, said in August that even if Germany’s gas storage facilities were 100 percent full, they would be empty in 2.5 months if Russian gas flows were stopped entirely.

Europe last week early reached its target of filling its gas stocks by 80 percent by November. According to data from Gas Infrastructure Europe, stocks in the EU are currently 81 percent full, and stocks in Germany are 85 percent full.

Izbicki said prices would have to reach an average of €400 per MWh between September 2022 and the end of October 2023 to encourage enough sellers to send gas to storage for the EU to meet its targets for next year before winter 2023.


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