Russia can keep Nord Stream gas muted after work, Goldman says

A major Russian pipeline to Europe may not return to full capacity after scheduled maintenance this month, said Goldman Sachs Group Inc., reiterating the concerns of German officials.

Nord Stream 1 closes for works on 11-21. July, tightening a market that has seen prices rise in recent weeks. As Russia has already reduced flows through the pipeline to only 40% of normal levels, any move to withhold supplies for a long time would seriously hurt Europe’s efforts to replenish stocks by winter.

“Although we initially assumed a full recovery of NS1 flows after its upcoming maintenance event, we no longer see this as the most likely scenario,” Goldman analysts said in a note. The bank raised its gas price forecasts for Europe for next year, citing increased supply risks.

European gas is trading at its highest level in almost four months, as consumers endure the worst energy crisis in decades, while once rock-solid utilities struggle to stay afloat.

Germany, which is dependent on Russia for more than a third of its gas imports, said last month that the decline in flows through Nord Stream made it difficult to reach storage targets, and expressed fears that the pipeline may not return to normal capacity after the planned worker.

The International Energy Agency even warned on Tuesday that a complete cut in flows “cannot be ruled out” given Russia’s “unpredictable behavior.”

While Goldman sees a total halt in deliveries as unlikely – as it would reduce vital revenues for Moscow – the bank raised its third-quarter forecast for benchmark gas futures to 153 euros per megawatt-hour. Prices could rise above 200 euros in a “worst-case scenario” for Nord Stream shipments, it says.

Front-month gas extended gains to trade above 170 euros on Tuesday as supply concerns were exacerbated by a closure of fields in Norway due to strikes and rising prices in Asia.

© 2022 Bloomberg

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