26/07/2022
Since it was taken out of repair last Thursday, deliveries through Nord Stream 1 have been reduced by Gazprom from 40 percent to just 20 percent of capacity. Depending on who you ask, there are several explanations for the shutdown. Commentators in Germany point to "political considerations," while Russia maintains that the supply restriction is solely physical because a gas turbine at the Portovaya compressor plant has been shut down. The turbine in question does not seem to be the same as the one they are expecting from Canada and has not yet arrived on Russian land, despite Siemens blaming Gazprom for failing to provide necessary customs papers.
Gains were made quickly in the wholesale market, which was already uneasy due to the NS1 flows being curtailed to 40% of capacity. Currently, it is highly improbable that the EU will meet its gas storage goals without a change in Russian flow patterns. The likelihood of gas rationing and a particularly challenging winter increases, increasing the Oct-22 Annualised NBP by 5.9% and Baseload by 4.6 percent. As W-22 is the main worry, gains were softer lower down the curve.
This morning, Dutch TTF gains 10.48 percent, along with gains of 1.35 percent for Carbon and 1.64 percent for Brent. France's opposition to the "uniform" 15% reduction in gas use that the European Commission has recommended, along with Spain's opinion that such a reduction would be unworkable, adds to the uncertainty. Today's discussions with the ministers will go on with the prospect of a settlement on the table. It is unlikely that countries coming to an agreement to impose gas rationing plans across the EU will significantly calm markets. The move brings to mind the winter of discontent, along with extensive strike action, the possibility of a recession, and a war of attrition.
A £10/MW gain, up to £495/MW, is implied by W-22's Baseload bid-offer-spread despite the morning's modest trading activity. The contract could be broken today by £500/MW at the asking amount.
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