Eastbound gas flows resume on Russian Yamal-Europe pipeline

Yamal pipeline [Gazprom]

Gas flows from Germany to Poland resumed on Wednesday evening (2 February) via the Russian Yamal-Europe pipeline, which usually sends Russian gas westwards into Europe, data from German network operator Gascade showed.

The pipeline, which usually accounts for about a sixth of Russia’s annual gas exports to Europe and Turkey, has been operating in reverse mode since December, putting upward pressure on European gas prices.

Mutual accusations

The phenomenon has triggered a row between Moscow and its western neighbours, in which the West accused Russia of deliberately withholding gas and helping drive prices to records, in part to boost pressure on German regulators to approve the new Nord Stream 2 link that would increase Russian gas flows to Europe.

Russia has denied the accusations. Conversely, it has blamed German firms on speculation.

The Yamal-Europe pipeline is more than 2,000 kilometres long and brings gas from the gas-rich Yamal region in the Russian Arctic.

It passes through the city of Smolensk in western Russia, runs on through Minsk in Belarus and then travels across Poland before terminating at the Mallnow compressor station near Frankfurt an der Oder near the German-Polish border.

Construction of the pipeline began in 1994 and it reached annual designed capacity in 2006 of almost 33 billion cubic metres, or around one-sixth of Russian gas exports to Europe.

The pipeline’s portion in Poland is owned by EuRoPol Gaz, a joint venture of Russian energy giant Gazprom and Poland’s PGNiG.

The German section of the gas pipeline is owned by WINGAS, a joint venture between Gazprom and oil and gas company Wintershall DEA. Wintershall, in turn, is co-owned by German chemicals group BASF and Russia’s LetterOne.

Polish contract

A long-term gas transit contract between Russia and Poland expired in mid-May 2020. Since then, Gazprom has booked short-term transit capacity through the pipeline via auctions.

It has not booked capacity at daily actions since 19 December, when the pipeline has been operating in reverse mode.

Cheaper in reverse

The pipeline sometimes switches into reverse, when gas flows from Germany to Poland, which occurred in October too.

This reverse mode means there are no requests for gas towards Germany, which also receives Russian gas via the Nord Stream 1 pipeline on the bed of the Baltic Sea.

Russian oil and gas export monopolist Gazprom ships gas to Germany at cheaper prices than to Poland to offset higher the transit fees involved in piping it for a longer distance.

However, this complicates gas sales as the European Union has allowed re-exports of gas which were previously banned by Gazprom. Gazprom agreed to drop the re-export clause in 2017 as part of an antimonopoly probe into its practices in Europe.

This effectively allows gas bought at a discount from Russia in Germany to be sold to buyers other countries at a profit.

Bad signal

But the reversal of the Yamal system was interpreted as a bad sign. European benchmark gas prices jumped to a record €184.95 per megawatt hours (MWh) on 21 December when Yamal reversed flow.

High prices have discouraged purchases of spot volumes from Russia, with buyers instead tapping stored gas in Europe, where storage levels have fallen below their five-year average.

Incidentally, much warmer-than-average temperatures across the major population centres of Northwest Europe throughout January have avoided further pressure on already low storage levels.

European gas traders are now much more confident the region’s inventories will remain sufficient through the end of winter, avoiding a price spike or the need for governments to introduce rationing.

But there is still a risk of colder than normal temperatures in the final part of winter or an interruption of supplies if NATO/Russia tensions escalate.

Many gas market analysts expect gas prices to remain elevated for the next two years or more.

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