Natural gas transmission network Gas TSO of Ukraine has sold monthly capacity at the Russian border, with Russia's state-owned Gazprom Export the most likely purchaser despite growing military tensions in the region.
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With Russian capacity purchases through regional intermediary Naftogaz Ukrayiny now a feature of monthly capacity auctions, their continuation for May delivery might signal that a Russian invasion may not be imminent.
According to results published by auctioneer RBP on April 19, a total of 15 million cu m/d of Ukrainian entry rights were sold at the Sudzha border point between the two countries, as well as a corresponding exit of 14.84 million cu m/d at Ukrainian-Slovak Velke Kapusany, all but confirming additional Russian transit.
Additional Velke Kapusany bookings, in addition to the 67.5 million cu m/d of transit capacity for 2021 agreed to as part of December 2019's Ukraine-Russia transit accord, have therefore improved month on month, with April delivery contracts amounting to 79.89 million cu m/d. These rights have been nearly fully utilized in the month to date.
The 2019 accord, which grants Russia 40 Bcm/year of transport rights within Ukraine for the calendar years 2021-24, was signed after Russia settled a net arbitration award close to $3 billion claimed by Naftogaz pertaining to disputes arising from the previous decade's transit agreement.
Ukraine has argued that construction of the Nord Stream 2 dual pipeline system, set to run alongside the existing 55 Bcm/year Nord Stream through the Baltic Sea and into Germany, is an attempt to circumvent Ukrainian transport altogether, along with other recently commissioned Russian transit such as TurkStream.
Indeed, even the auctions for May demonstrated how Russian reliance on Ukraine could be fading, with the Trans-Balkan Isaccea interconnection between Ukraine and Romania recording zero sales as Russian-sourced supply to Romania is now assumed to be delivered through other means.
According to Gas TSO of Ukraine data, the 2019 accord prescribes 26 million cu m/d of exit to Hungary, and 11.1 million cu m/d to Poland for the current gas year, with the former also allocated an extra 500,000 cu m/d in the April 19 auctions. No allowance has been made for exit to Romania via Isaccea.
With the US recently intensifying sanctions against Russian and European entities involved in the construction of Nord Stream 2, and threatening its completion, political strategists may view Ukrainian gas transport as a source of considerable leverage for Ukraine itself. They also may consider it an objective for Russia should US sanctions be successful in derailing Nord Stream 2.
Tens of thousands of Russian troops are reported to be massed 40-50 miles from the Russian border with Ukraine. The Kremlin is reported to have said these troops are conducting military exercises within their own borders.
The Prisma auction platform for European TSOs also recorded some significant results April 19.
Relating to Russian transport routes within Europe, the Brandov interconnection between Germany and Czech Republic, whose capacity was recently increased owing to the April commissioning of the second Eugal string, recorded sales of 410,000 cu m/d out of just 1.14 million cu m/d that was offered.
Russia is known to have used the route through the Czech Republic, Slovakia and Austria to Italy since the latest Ukrainian transit accord came into effect on Jan. 1, 2020. As a joint owner of Gascade, Gazprom commissioned the first string of Eugal from this date to compensate for lower Ukrainian capacity.
Indeed, the increased traffic through Eugal has led to record flows through Brandov since the start of April. This translated into a significant capacity purchase of Net Connect Germany entry capacity at the Czech-German interconnection at Waidhaus, totaling 19.5 million cu m/d in allocations.
High levels of Algerian supply to Italy via Mazara Del Vallo are set to continue into May, with Italian TSO Snam recording an impressive 19.28 million cu m/d of May contract sales at this point, after having posted 44.66 million cu m/d to Prisma for the monthly auction.
Algeria and Russia are competitors within the Italian gas market. Oil-linked volumes from Algeria are still in the money, with S&P Global Platts Analytics estimating monthly prices with a nine-month lag to oil at Eur16.66/MWh for May delivery. The price for sourcing at Italy's PSV hub was assessed by Platts at Eur21.325/MWh for May delivery on April 16.
HIGH DEMAND FOR STORAGE INJECTIONS
Rising European front-month gas prices are largely attributable to high demand for storage injections this summer.
This was reflected in capacity purchases by European shippers for entry connected to Norwegian supply and German storage exit, which amounted to 7.53 million cu m/d and 4.95 million cu m/d respectively, with 91% of Norwegian allocations for delivery into Germany.
According to Gas Infrastructure Europe, pan-European storage was 29% full April 17; this is 39 percentage points lower than a year ago, with no net injection so far in April due to an extension of cold weather after an already cold winter delivery season.
Lower Russian supply to Europe via Velke Kapusany this year could also be a contributing factor to the storage deficit.