Signs continue to mount that Moscow intends to wield natural gas as a geopolitical weapon heading into the winter season. First came a largely unexplained dip in volume moving through the Nord Stream I pipeline through June. Now comes a full shutdown of the pipeline until July 21 for a planned period of testing and maintenance, as per Gazprom, the pipeline owner. Both disruptions have complicated efforts by European authorities to reach 80% reserve storage capacity by October, and suggest the possibility of significant supply (and price) volatility during the cold season, and/or forced rationing in energy-starved European economies.

Analysis

Any interruption of volume through Nord Stream I is highly consequential: the pipeline supplies nearly 40% of Russian gas to the European Union. Therefore, its shutdown for any amount of time seriously complicates efforts by Rome, Paris, and Berlin to top up their domestic supply ahead of the winter months.

The target threshold for domestic supplies recently increased following new regulations from the EU Council, intended to bolster supply as much as possible and facilitate sharing between EU countries when the inevitable crunch hits during the winter. The target threshold is now 80% of available storage capacity by November 1, 2022, and 85% in subsequent years. As of June 27, EU gas reserves stood at approximately 55.7% of capacity, a level that would have likely come in just short of the 80% objective by November. However, these latest disruptions threaten to at best make the refilling process much more costly, as it forces EU states to turn to red-hot LNG markets, and at worst imperil the 80% goal completely, depending on how the situation develops from here.