30 May 2022 10:15

Calm weather reduces wind generation in Europe, but gas transit request via Ukraine little changed

MOSCOW. May 30 (Interfax) - Ukraine's Gas Transport System Operator (OGTSU) has accepted a request from Gazprom for Monday to transport 44.6 million cubic meters of gas through the country, compared to 44.1 mcm on Sunday, data from OGTSU show.

Capacity was requested only through one of two entry points into Ukraine's Gas Transport System, the Sudzha metering station. A request was not accepted through the Sokhranovka metering station.

OGTSU declared a force majeure in regard to accepting gas for transit through Sokhranovka, citing the fact that it cannot control the Novopskov compressor station.

Gazprom believes there are no grounds for a force majeure or obstacles to continuing to operations as usual. Ukrainian specialists worked smoothly at the Sokhranovka and Novopskov stations all this time and continue to do so; transit through Sokhranovka was ensured in full, and there were and are no complaints from counterparties, the Russian gas giant has said.


European gas buyers are optimizing supplies amid a downward trend in prices. Most contracts with Gazprom are pegged to the month-ahead index, which could be above $1,100 per 1,000 cubic meters for May. Prices on the spot market, meanwhile, have dropped to $926 as warmer weather arrives and politicians and the market accept the new system for paying for Russian gas. In addition, liquefied natural gas (LNG) coming into Europe is selling at a significant discount to the continent's benchmark TTF index. As a result, buyers are looking for a cheaper alternative on the market.

As prices fall, Europe's LNG imports have dropped somewhat in May from the record high of April, when the European gas transport system took in 10.651 billion cubic meters or 355 mcm per day from LNG terminals. As of the last reporting date, May 28, use of regasification capacity at European terminals was at 59%, which is far from the peak of 77% at the end of April.

The region is continuing to inject gas into underground gas storage (UGS) facilities, reserves in which now stand at 45.78%, up by 0.4 percentage points from a day earlier, data from Gas Infrastructure Europe show. Reserves in Europe's UGS currently lag 2.6 percentage points behind the five-year average.

The weather in Europe this May has been four degrees warmer than it was a year earlier, which increases the region's ability to inject gas into storage. The pace of gas injection into UGS since the beginning of May has exceeded the five-year average by 33%, compared to just 12% in April.

Europe imposed tight regulation of the use of UGS this year. Reserves are supposed to be at least 80% of UGS capacity by the start of the 2022 offtake season and increase to 90% in subsequent years.

The situation with renewable power generation in Europe has again worsened. Wind power contributed just 13% of electricity generation across the European Union on Sunday, amid a general weekend decline in consumption, while last week the figure ranged from 15% to 24%, data from WindEurope show. In the week ahead, the late spring cold is expected to finally give way to sunny, calm weather, which will lead to a drop in wind power generation and increased used of gas, along with higher power consumption for air conditioning.

New payment system

President Vladimir Putin signed a decree (No. 172) on March 31 on a "special procedure for foreign buyers' fulfilment of obligations to Russian suppliers of natural gas," under which payment for Russian pipeline gas supplied after April 1 to foreign counterparties specified in the decree must be made only in rubles.

Under this procedure, special "K" type ruble and foreign currency accounts are opened at the authorized financial institution, Gazprombank (GPB) , for foreign buyers. These accounts prohibit the suspension of transactions, freezing or debit of funds as part of foreign buyer's fulfillment of obligations that are not related to payment on contracts to supply natural gas. Foreign buyers pay for gas in the currency of the contract, which the bank then sells on the Moscow Exchange and transfers rubles to Gazprom . This is the point at which payment for the gas is considered to be completed.

If this condition is not met, gas supplies will be suspended. Further gas supplies are prohibited if the payment deadline for gas supplied under a contract has expired but the foreign buyer did not make the payment or made it in foreign currency, not in the full amount or not to the account at the authorized bank.

Russia has already suspended gas supplies to Poland, Bulgaria and Finland because they refused to comply with the new payment system.