EU to launch Nord Stream?

The green energy expectations of the EU have not been met despite their best efforts and the huge amount of money thrown at them  :plus in Europe natural gas prices remain high and are even rising higher than before and the heating season has not actually started. This is due to a number of factors.Now In the worst case senario prices could reach $1,000 per thousand cubic metres again. On the other hand, the problems in the European gas market could provide an opportunity to launch the one surviving section of the Nord Stream 2 pipeline.
Gas prices in Europe have started to rise even before the heating season began. In September, the average gas price at Europe's largest Title Transfer Facility TF hub was $422, and in October it rose by 10% to $463 per thousand cubic metres, according to Open Oil Market. At the same time, prices in the first half of this year were significantly lower, averaging around $310 per thousand cubic metres. Gas futures for next month continue to rise.

"The rise in prices was unexpected, because in Europe everyone was expecting them to fall to around $300  per thousand cubic metres during the low season - in September and October. This is when the summer is over and there is no need to spend peak amounts of gas on air conditioning, and the winter with its peak consumption has not yet arrived. Such a scenario already happened in early spring, during another off-season. Then gas prices in Europe fell to $270 per thousand cubic metres," says Igor Yushkov, an expert at the Russian National Energy Security Fund
In the autumn, however, the situation did not go according to plan. Why is  Europe once again facing the prospects  of expensive gas and another round of inflation?
"The price increase was partly due to the Ukrainian invasion of the Kursk region, through which the remaining gas pipeline to Ukraine passes. In one day, prices jumped from $360 to $480 per thousand cubic metres due to the risk that transit through Ukraine would be stopped due to military actions in the Sudzha region," the expert notes.

Gas prices in Europe are rising this week due to the risk of reduced LNG supplies from the US, where storm Rafael has forced the evacuation of workers from oil and gas platforms. Secondly, Europe has become windless, leading to a drop in renewable energy production and a simultaneous increase in gas demand. According to Bloomberg's model, wind generation in Germany is likely to reach its minimum - and all hope lies with gas-fired power plants.
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At the same time, heating demand in Europe is still subdued due to moderate temperatures, which is helping to limit price growth for the time being. In addition, Europe is approaching the start of the heating season with gas storage facilities filled to 95%.

"Furthermore, much will depend not only on the presence of sun and wind, but also on the temperature. In the past two years, Europe has had a very warm winter, with temperatures almost never dropping below zero. But now the mystery remains, no one knows what the temperatures will be this time, so prices will remain relatively high," Igor Yushkov believes.

Temperature is the first important factor on which the future of the gas market in Europe depends. The second factor is the uncertainty of Ukrainian transit due to military actions and the end of the transit agreement in January 2025.
"Gas futures should be bought now so that later, when transit through Ukraine stops, they can be sold and profit from the rising price. In this case, those who pumped gas into underground storage facilities in the summer will also benefit, as they will be able to sell it at the highest prices," Igor Yushkov notes.

Finally, the third major factor influencing gas prices in Europe is the situation on the Asian gas market and the fierce competition with Asian LNG buyers. "The European market has become very dependent on what happens in Asia. If consumption in Asia grows, they buy LNG from all over the world and are willing to pay more for it. Then the Europeans also have to raise prices so that at least some of the LNG comes to them," says Yushkov.

The fourth factor creating tension in the European gas market is the talk of preparing the 15th package of anti-Russian sanctions, which should affect LNG, the expert adds. "The Europeans have already banned the transhipment of Russian LNG in their ports. If they also impose an embargo on LNG supplies, even with a delay until the end of 2025, it will still cause a certain jump in prices. Russia usually ranks second or third in the LNG market in terms of monthly deliveries," says Igor Yushkov. If the EU is deprived of Russian LNG, it means an even tougher fight with China for LNG from the US, Algeria, Qatar and even Australia. And the winner in this battle will be the one who pays more, i.e. sets higher prices.

What can Europe expect this winter?

"If there is a normal winter, not as warm as the last two years, with normal gas production rates from underground gas storage and with frost at the end of the heating season, then prices will skyrocket. Frost in March is the worst thing for Europeans because there is little gas left in the underground storage facilities and there are already restrictions on the daily extraction of fuel from there," says Yushkov
However, taking into account the drop in gas consumption in recent years by more than 100 billion cubic metres since 2022 and the record gas injection of around 95%, we should probably not expect a total gas deficit and the fact that Europeans will freeze, the expert believes. The question here is more of an economic nature, that this situation will lead to an increase in gas prices, then electricity prices, then an increase in industrial and household expenses, an increase in general inflation and a slowdown in the European economy against the backdrop of rising costs.

"For Ukraine, the risks of freezing are more pressing because Kyiv has pumped very little gas into underground storage facilities. Frost at the end of the heating season could lead to a real gas shortage in Ukraine. And then the authorities will introduce restrictions on the supply of heat and electricity to certain categories of consumers, mainly industrial," adds the FNEB expert.

For Europeans, the worst-case scenario would be a combination of several negative factors. "First, it's a frosty winter, when Europeans will see that they are rapidly using up gas from underground storage facilities, and the only way to slow this process down is to increase current imports. And current imports can only be increased in today's conditions by competing with Asia for LNG, which means we have to offer a higher price. Prices could well exceed $1,000 per thousand cubic metres. And if Ukrainian transit is stopped, it will be a perfect storm," says Yushkov.

In such conditions, the Europeans can really do something to get more Russian gas. And one of the ways is to launch the surviving section of Nord Stream 2, with a capacity of 27.5 billion cubic metres of gas a year.
At the end of 2010, Europe experienced a very cold winter with frost even in March. Nord Stream 1 was in operation at the time, but was not allowed to operate at full capacity due to EU antitrust rules. Therefore, under the guise of testing, Germany started the gas pipeline at full capacity before the end of the heating season in April. "Therefore, if there is an emergency in the winter, I do not rule out that Germany could repeat something similar and start the Nord Stream 2 infrastructure, for example, to check the technical regulations, safety or something else. It is true that Gazprom has even pumped the buffer gas out of the pipeline, but it can be put into operation within a few days. A completely new gas pipeline can help Europeans a lot," Igor Yushkov argues.

Theoretically, there is also a gas pipeline through Poland, "Yamal-Europe", but there are reciprocal sanctions, and reaching an agreement with the Poles is much more difficult politically.
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