Lack of December capacity bookings casts doubt over Gazprom injection strategy

LONDON (ICIS)–Questions have been raised about Russian giant Gazprom’s strategy for refilling its depleted storage sites in Germany after the producer booked no capacity for December at the Yamal pipeline’s Mallnow entry point at the most recent capacity auctions.

If Gazprom chooses to delay refilling its German storage sites, this would mean that overall German storage stocks will continue to remain historically low, making it more vulnerable to winter-related demand spikes.

The timing of any winter cold snap would also become even more key in terms of the price outlook for the latter half of the colder season.

Results released on Monday showed Gazprom’s December bookings were significantly lower than bookings for November, when the producer reserved 30 million cubic metres (mcm)/day at the Mallnow entry point, of 87mcm/day that was available.

Mallnow flows for November have only averaged 7mcm/day, down from just under 14mcm/day in October, according to ICIS collated data.

Until maintenance and supply disruption in July and August, flows through the pipeline for the first six months of the year had averaged 76mcm/day.

At Velke Kapusany, on the Ukraine–Slovakia border, just 17mcm/day was booked for December, down from the 19mcm/day that Gazprom has been booking on a daily basis for the last week.

A lack of capacity bookings at Velke Kapusany reduces the likelihood that Russia would look to flow additional quantities of gas into Germany via alternative routes.

NORD STREAM 2

Russia had hoped to transport gas into Europe through the Nord Stream 2 pipeline, with producer Gazprom declaring in late August the pipeline could carry 5.6 billion cubic metres in 2021.

However, this has become increasingly unlikely following the decision by the German Federal Network Agency (BNetzA) to suspend the certification process of the pipeline.

Certification could only be possible if the operator of the pipeline is organised legally under German law, which is not the case with current operator Nord Stream 2 AG, as it is based in Zug, Switzerland.

Until then, the certification process will remain suspended, BNetzA said.

STORAGE SITES

The lack of capacity booked through existing routes for Russian gas flows, and the suspension of the Nord Stream 2 certification process, casts uncertainty over Russian targets to begin reprioritising the filling of its European storage sites.

On 27 October, Russian president Vladimir Putin had instructed Gazprom to begin injections into its storage sites in Germany and Austria from 8 November, following the completion of injections into Russian domestic storage sites.

But since 8 November, net injections into German storage sites associated with Gazprom have yet to increase at all with ICIS collated data indicating injections since 8 November have averaged just under 6mcm/day.

Gazprom’s German inventories currently total just 2.6 billion cubic metres (bcm), down 69% from the average stock level for the same day between 2017–2020.

GERMAN WITHDRAWALS

The absence of Mallnow flows, and growing winter-related gas demand, saw German storage sites flip to withdrawals on 2 November. These withdrawals have since proceeded at a rate of almost 53mcm/day according to ICIS collated data.

German storage stocks, as a result, stand just under 62% full, down three percentage points since the start of the month and 30 percentage points lower than the same period last year.

And withdrawals look likely to continue for the remainder of November as the THE Day-ahead contract has been trading at a consistent premium to the Balance of Month (BOM) product, incentivising shippers to withdraw gas.

On Tuesday the THE Day-ahead contract traded at a €0.500/MWh premium to the BOM, according to ICIS price assessments.

But withdrawals should slow in December, which would bring some respite to a strained storage system as the Day-ahead has traded at a consistent discount to the December ’21 front-month contract, closing €0.675/MWh lower on 16 November.