European natural gas prices surged on Monday after Russia’s state-owned energy giant Gazprom said it would shut down Europe’s single biggest piece of gas infrastructure for three days from the end of the month.
The unscheduled maintenance works on the Nord Stream 1 pipeline, which runs from Russia to Germany via the Baltic Sea, deepen a gas dispute between Russia and the European Union and exacerbate both the risk of a recession and a winter shortage.
The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, jumped 19% on Monday to reach 291.5 euros ($291.9) per megawatt hour. The contract closed on Friday at a record high of 244.55 euros per megawatt hour, registering its fifth consecutive weekly gain
Gazprom said gas transmission would resume at a rate of 33 million cubic meters per day when the maintenance work is completed “provided that no malfunctions are identified.”
The announcement of the temporary shutdown comes as European governments scramble to fill underground storage facilities with natural gas supplies in a bid to have enough fuel to keep homes warm during the coming months.
“On its own, a brief closure of the pipeline would not make a major difference, especially as Russia has reduced its gas exports through NS1 to 20% of capacity since 27 July anyway,” Schmieding said in a research note. “But it highlights two grave risks: (i) Russia may falsely claim that it cannot re-open the pipeline afterwards because of a ‘technical issue’ that could only be resolved if Western sanctions were lifted, and (ii) Russia may also shut down its other pipelines to Europe later on,” he added.