BOFIT Viikkokatsaus / BOFIT Weekly Review 2022/37

On September 2, Gazprom shut off all gas flow in the Nordstream 1 gas pipeline running along the bottom of the Baltic Sea from Russia to Germany. Gazprom said the reason for the shutdown was technical. Kremlin press secretary Dmitri Peskov said the gas cut-off was retaliation for Western sanctions. In any case, the shut-off surprised no one; Nordstream had operated at fluctuating capacity all summer.

Gazprom has been reducing its pipeline gas exports to the EU for about a year. The gas giant last spring began dragging its feet on replenishing its own gas storage facilities in Europe. In October 2021, Gazprom ceased selling its gas on spot markets, causing gas market prices to rise in Europe. Russia halted in April its gas transmission via the Yamal-Europe pipeline running through Poland. In May, gas flows via the Sokhranvika metering station on the Ukraine-Russia border were shut down due to war activity. With Nordstream 1 offline, only a small amount of Russian pipeline gas transmitted via Ukraine or Turkey presently reaches EU countries. According to a Gazprom press release, the company’s exports to the EU in January-July contracted by 50 % from the 2021 level.

EU countries have largely succeeded in finding alternatives to Russian pipeline gas. Eurostat reports that EU gas imports only declined by 3 % y-o-y during first six months of 2022.

The collapse in demand for gas exports to Europe is reflected in Russian gas production. While gas production was only down by 5 % y-o-y for the first half of this year, it fell by 24 % in July. The collapse in exports is clearly evident in Gazprom’s production figures, which saw output decline by over 30 % y-o-y in June, July and August. The dramatic declines in production levels indicate that Russia has completely filled its available storage facilities. Russian gas production needs to be lowered considerably for the rest of the year if exports to the EU remain at August levels.

Russian natural gas production has fallen rapidly in recent months


Sources: Rosstat, CEIC, BOFIT. Production figures do not include associated gas extracted from oil wells.

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