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Post: Commodities Corner: Nord Stream pipeline leaks remind Europe it can’t rely on natural gas from Russia

Europe can’t rely on Russia for natural gas — that’s an issue that had already fueled a rally in European benchmark prices for the energy source, but damage to the underwater Nord Stream pipelines from apparent, unexplained explosions is certainly a reminder.

Benchmark Dutch front-month gas futures were trading 10% higher on Wednesday at €205 per megawatt hour following a climb on Tuesday. U.K. gas futures 

for October rose nearly 26% to £321.67 per megawatt hour.

The rise in European prices follows leaks to the Nord Stream 1 and 2 pipelines, two major gas pipelines from Russia and Europe, on Monday, which escalated diplomatic relations between Nordic and German countries with Russia. Seismologists on Monday also reported explosions in the area, with no known source.

No gas has been flowing through the pipelines to Europe, though reports say that the pipelines do contain natural gas. Barron’s reported that the gas has bubbled to the surface of the Baltic Sea, potentially leading to an environmental disaster.

Nord Stream 2, which hasn’t been cleared to operate, has never delivered gas to Europe, said Tyler Richey, co-editor at Sevens Report Research. Flows through Nord Stream 1 were halted earlier this month indefinitely, after the Group of Seven agreed to an oil price cap for Russian crude.

Read: How investors may benefit from a dive in natural-gas prices as winter looms

Investors already were pricing in “uncertainty about the future flows through the two pipeline systems amid the ongoing war in Ukraine,” Richey told MarketWatch.

Adding to tensions, Denmark’s Prime Minister Mette Frederiksen said it’s “hard to imagine” that leaks detected on the Nord Stream pipelines were “accidental,” DW News reported in a tweet Tuesday.

European Union foreign policy chief Josep Borrell also said in a statement that “all available information indicates those leaks are the result of a deliberate act,” according to the Associated Press.

“If these leaks are eventually determined to have been deliberately caused by Russia, it would mark an escalation of the gas blackmail strategy that the Kremlin has been using since the first weeks of its war in Ukraine,” Pavel Molchanov, energy analyst at Raymond James, wrote in a research note. “The broader context is the Kremlin’s frustration with the failure of its weaponization of gas exports.”

With EU gas storage currently at 88%, and still a month to go before heating season beings, “there is no longer any reason for Europeans to worry about physical gas shortages this winter,” said Molchanov. Europe has “managed to successfully disentangle from [Russia’s] Gazprom, more rapidly than anyone could have imagined at the start of the war.”


Questions about the leaks and who may have carried out any pipeline attacks remains “unclear as Russia is blaming the West and the West is blaming Russia,” said Richey.

“From a market standpoint, it does not really matter who carried out the attacks at this point — only that European gas imports are going to be well below normal levels this winter and that again raises the threat of a gas shortage and potential energy crisis developing in the months ahead,” he said.

Nord Stream 1 “represented 100% of the theoretical spare capacity available to Europe.”

— Manish Raj, Velandera Energy Partners

Even without an actual flow of gas, Nord Stream 1 “represented 100% of the theoretical spare capacity available to Europe,” said Manish Raj, chief financial officer at Velandera Energy Partners. “Whereas nobody expected Russia to resume flows any time soon, at least Nord Stream was an option available on the table.” 

“The leaks just transformed a temporary, controlled supply halt into a long-term supply disruption that is now beyond the control of both Europe and Russia,” he told MarketWatch. 

“Conspiracy theories about potential sabotage is perplexing, since neither Europe nor Russia stand to gain from the damage to the pipelines,” he said. “Russia could have just shut off the taps, rather than destroy its own assets.”

The only remaining route for natural gas from Russia to Europe goes through Ukraine, via the Sudzha pipeline, or through Turkey, via the Turk Stream pipeline, said Raj. So, “both Europe and Russia are now more dependent on these transit countries.”

Gazprom, however, threatened to switch off gas flows through Ukraine because of a legal dispute over transit fees, which provoked Moscow to sanction Ukraine’s gas company Naftogaz, according to a report Tuesday from Bloomberg

In the U.S., the natural-gas market
at least for now, appeared to be more concerned about production disruptions in the Gulf of Mexico from Hurricane Ian and the potential for declines in natural-gas demand from power outages, than the issues overseas.

Read: U.S. oil prices climb back above $80 as Hurricane Ian forces production cuts

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