Despite gas supply returning to 67 million cubic meters per day (MMcmd) through the Nord Stream 1 pipeline, prices and sentiments in the gas market remain clouded in uncertainty. Uncertainty about the Russian supply along with other factors are keeping the prices up and the market tight.
The European gas market is looking to move away from Russia with bringing more regasification infrastructure online and signing LNG deals. Russia therefore has to keep the gas flowing to maximise their USD and Euro revenues before Europe eventually shifts away. However, fears persist that Russia may completely switch off supplies.
European countries will need to work together fast if they are to get through the winter without much trouble. Even then, the shadow of the next winter in 2023-24 is likely to keep prices high for many months. Gas needs for cooling are rising due to significant heat waves with temperatures above 40 degrees recorded in several countries across Europe throughout the week, and forecasts of high temperatures for the coming days.
The EU has started to take more serious steps towards solving the energy crisis. Last week the EU proposed a target for all its member states to cut their gas use by 15% from 1 August 2022 to 31 March 2023, as compared to their average consumption in the same period during the years 2016 to 2021. The proposal could be approved by ministers to become mandatory on 26 July if a severe risk of gas shortages is declared.
Other measures being considered as non-binding guidelines include auctions or tenders with industries offering gas consumption reduction in return for compensation; reducing heating in public buildings, commercial centers, offices and other public spaces, and temporarily easing pollution rules for power plants. Furthermore, EU has signed an MoU with Azerbaijan to boost gas imports from 8.1 billion cubic meters in 2021 to 12 Bcm this year and at least 20 Bcm by 2027. Algeria is meant to deliver an extra 4 Bcm of gas over and above the previously planned 21 Bcm this year. With Europe buying enormous amounts of LNG, the global market is extremely tight and prices are staying high.