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European natural gas and power prices reversed a nearly week-long decline on Tuesday as news of potential damage to the Nord Stream 1 (NS1) and Nord Stream 2 (NS2) pipeline networks stoked concern about the future of Russian supply to the continent.
The operator of NS1, Nord Stream AG, detected a drop in pressure late Monday on both strings of the natural gas system. A few hours later, the operator confirmed there were substantial leaks in three different lines, including NS2.
“The destruction that happened within one day at three lines of the Nord Stream pipeline system is unprecedented,” a Nord Stream AG spokesperson said. “It’s impossible now to estimate the timeframe for restoring operations of the gas shipment infrastructure.”
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Prices in the United States were not notably affected by the rally in Europe. With potential demand destruction from Hurricane Ian looming, the October Nymex gas futures contract on Tuesday settled at $6.651, down 25.2 cents.
Analysts with European trading firm Energi Danmark wrote Tuesday that news of the leaks were inspiring upside movements for natural gas and power, as a restart of NS1 “becomes even more uncertain now.”
Expectations that EU storage would reach the 85% of capacity target before winter had previously dropped the Dutch Title Transfer Facility (TTF) prompt LNG price to its lowest point since mid-July.
On Tuesday, the prompt TTF rose almost $4, closing around $57/MMBtu. It was an increase from Monday’s price, which closed at $54.498.
Shortly after the leaks were identified in the Baltic Sea late Monday, the Danish Defense Command captured images of gas surfacing around the system. The images showed large, roiling patches of gas near the Danish island of Bornheim.
The damage did not cause an abrupt change to Europe’s supply outlook, as western flows on NS1 have been halted since the beginning of the month. Russia’s Gazprom PJSC has blamed western sanctions for interrupting its maintenance schedule for compressor stations, which it said requires it to shutdown the system.
There had been no definitive source for the leaks late Tuesday, but it could be a sign post for more political shenanigans.
Rice University’s Anna Mikulska, of the Baker Institute for Public Policy, told NGI that the damage and a possible end to Ukrainian deliveries could signal an end to Russia’s energy relationship with Europe.
Mikulska said the reliance European economies had on Russian gas, even as it has waned over the past couple of months, has given President Vladimir Putin an opportunity to create instability by disrupting flows.
With European storage rising and prices beginning to stabilize before winter, Mikulska said Russia could be running out of levers to pull, outside of increasing geopolitical tensions.
“Especially with damage to Nord Stream, there is a good argument that there is little else Russia can do unless it will say they will send more gas to Ukraine, which it seems like is off the table,” Mikulska told NGI.
NS1, which runs from Russia to Germany under the Baltic Sea, previously provided around 25% of the European Union’s yearly Russian gas imports. It was reduced to 20% of capacity in July. NS2, built parallel to NS1, has not operated commercially. Construction was completed last year, but German authorization was rescinded in February following Russia’s invasion of Ukraine.
Along with stoking prices, the damage to the NS systems has also heightened alerts from European countries about possible interference from Russia. Shortly after Nord Stream AG confirmed the leaks, Ukraine’s Mykhailo Podolyak, an adviser to President Volodymyr Zelensky, tweeted that the situation was likely sabotage. “Gas leak’ from NS-1 is nothing more that a terrorist attack planned by Russia and an act of aggression toward EU,” Podolyak tweeted.
Denmark’s Prime Minister Mette Frederiksen reportedly said sabotage could not be ruled out, although he said it was too early to draw conclusions. Danish, German and Swedish authorities have launched investigations and issued security advisories for other energy assets near the Baltic Sea.
Before trading closed in Europe on Tuesday, Gazprom also raised the threat of ending gas transmission to the continent through Ukraine. Along with the Nord Stream systems, Russian gas can flow west to Europe through Belarus on the Yamal-Europe pipeline and through Ukraine via the Transgas pipeline. Gazprom has already ended agreements to send gas to Poland.
In a statement Tuesday on Telegram, a social media site, representatives for Gazprom said the company may also cease doing business with Naftogaz of Ukraine, the state-owned energy company, effectively ending transmission through Ukraine to Europe.
Gazprom and Naftogaz have been involved in a series of disputes since 2005, resulting in an arbitration agreement stipulating they resolve issues in Switzerland. In response to western sanctions after the February invasion of Ukraine, Russia labeled Switzerland as an “unfriendly country.”
Naftogaz recently appealed the arbitration, which Gazprom said it considers “an unfriendly step” that may lead to Russia also sanctioning Naftogaz.
“In practice, this will mean a ban on Gazprom from fulfilling obligations to sanctioned persons under completed transactions, including financial transactions,” representatives for Gazprom wrote.
Kevin Dobbs contributed to this report.
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Related topics: Europe henry hub Nord Stream Nord Stream 2 Russia Russia-Ukraine conflict TTF
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