Russian gas exports to Europe drop sharply as new transit deal kicks in

Russian exports to Slovakia dropped nine-fold from an average 162million cubic metres/day throughout December to 17mcm/day on 1 January, while volumes on the Ukrainian-Hungarian border dropped from an average 41mcm/day in December 2019 to 6.8mcm/day on 1 January.

Exports via Drozdowicze on the Ukrainian – Polish border also fell from an average 10.8mcm daily throughout December to 8.7mcm on the first day of 2020. The pipeline can flow up to 15mcm of gas daily.

Flows to Romania via the Orlovka-Isaccea interconnection point fell from an average 4.3mcm/day throughout December to 2.5mcm/day on 1 January.

Meanwhile, flows to Bulgaria, Greece and Turkey were completely diverted from the historical Ukrainian transit route to TurkStream, a new Russian-spearheaded project which came online on 1 January.

The fall in exports to Slovakia and Hungary had a knock-on impact on onward exports to Austria and Italy.

Gas flows at the Austrian-Italian Tarvisio entry point fell from an average 62.5mcm/day last month to 31.3mcm/day on 1 January before ticking up to 33.8mcm/day on 2 January.

Meanwhile, exports to the Austrian Baumgarten hub, fell from an average 128mcm/day in December to 32mcm/day on 2 January.

Despite the sharp decrease in Russian flows, spot prices on European hubs increased only fractionally with the benchmark Dutch TTF Day-ahead gaining some €0.10/MWh on Tuesday’s close in Thursday’s early afternoon trading. Sources said traders may still be adjusting positions to fluctuations in demand and supply (see separate story)

NEW TRANSIT CONTRACT

Volumes are now exported under a new five-year transit contract agreed by Ukraine with Russia’s Gazprom

Sergiy Makogon, the CEO of new Ukrainian transmission system operator GTSOU said on Thursday that nominations and matching were being implemented and noted that Gazprom was not nominating more.

GTSOU had been working against the clock to secure a new transit deal with Gazprom and to sign interconnection agreements with neighbouring Hungary, Poland, the Republic of Moldova and Romania.

A Slovak source told ICIS that the Ukrainian and Slovak TSOs had also agreed to gradually replace the old legacy interconnection agreement with a new one to ensure the transition had no negative impact on markets. Slovakia itself has a transit agreement with Gazprom which is to expire in 2028.

A source close to Gazprom said the decrease may not be ‘intended’ but more linked to technicalities or low demand.

European traders polled by ICIS said they were making alternative arrangements to off-take gas from western Europe or to withdraw it from storage.

Norwegian inflows were expected to reach a record high of 116mcm/day on Thursday, according to ICIS-collated average hourly flow rates. They previously reached that figure only once on 5 December 2019.

On 1 January, the latest data available to ICIS, storage withdrawals from German facilities were at their highest since the beginning of winter at 52mcm/day.

Italy was also making alternative arrangements, ramping up imports at Passo Gries on the Italian-Swiss border from an average 4.25mcm/day in December to 27mcm/day on 2 January. Volumes were imported from north-west Europe via Switzerland.

It also raised its storage withdrawals from an average 75.4mcm/day in December to 111.4mcm/day on 2 January.

A trader attributed the lower Velke Kapusany throughput on the Ukrainian-Slovak border to Gazprom’s potential use of its excess storage capacity .

It had stocked up more than double its usual storage volumes ahead of the Ukraine transit contract expiry, in case of a supply cut-off. It could drain these volumes before ramping up westbound flows via Ukraine.

One trader polled by ICIS also mentioned the start-up of commercial flows via EUGAL, the pipeline link destined to connect supplies from Nord Stream 2 – expected for completion in mid-2020 – to Europe.

In the meantime, the EUGAL operator told ICIS it would fulfil its booked capacity obligations via connecting pipelines NETRA (Norway), NEL and JAGAL (Russia).

TURKSTREAM CHANGE

Meanwhile, in eastern Europe and Turkey, flows were completely changed, as volumes which had been historically exported to Turkey via the Trans-Balkan pipeline across Ukraine, Romania and Bulgaria were now diverted to TurkStream.

As of 1 January, Turkey started to receive its gas from TurkStream1, a 15.75 billion cubic metre (bcm)/year pipeline linking Russia to Turkey via the Black Sea. However, there was no available data published for the new entry point Kiyikoy in northwest Turkey. A Turkish market source told ICIS that incumbent BOTAS was unlikely to publish any flow data at this point. Turkey is not an EU state and therefore is not under any obligation to comply with transparency requirements.

Turkey was also exporting gas to neighbouring Bulgaria and Greece via TurkStream2, a parallel 15.75bcm/year line.

Data published by the Bulgarian transmission system operator Bulgartransgaz showed that a total of 10mcm/day of gas entered Bulgaria from Turkey on 1 January 2020.

Romania was expecting to import gas via the Trans-Balkan pipeline, although as of 1 January it can also off-take Russian volumes in reverse from Turkey via Bulgaria.