Explainer: Why Russian exports hold sway over European and British gas prices

5 minute read

A worker turns a valve at a gas compressor station at the Yamal-Europe pipeline near Nesvizh, some 130 km (81 miles) southwest of Minsk December 29, 2006. REUTERS/Vasily Fedosenko/File Photo

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LONDON, Nov 3 (Reuters) - Benchmark European gas prices jumped 15% this week after a major pipeline bringing gas from Russia began sending flows eastwards. But why do Russian exports have such an impact on Europe's gas markets, even in countries that Russia doesn't directly supply? read more


Europe relies on Russia for around 35% of its natural gas. The bulk comes through pipelines including Yamal, which goes through Belarus and Poland to Germany, Nord Stream, which goes directly to Germany, and pipelines going through Ukraine.

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Europe’s internal gas markets are linked through a network of interconnecting pipelines. Not all countries get supply directly from Russia, but if countries such as Germany, the biggest consumer of Russian gas, see lower flows from Russia they must replace this from elsewhere such as Norway.

That has a knock-on effect on how much gas is available from other sources for other countries, and for transit.

Gas prices in Britain have been just as volatile as those in continental Europe on any news out of Russia, even though it only typically gets around 5% of its gas from Russia. Lower overall Russian supply to Europe means less could be available from its largest suppliers, like Norway.

Europe's energy chief says European countries have enough gas to meet their needs over the winter. The issue, however, is the price they will need to pay.


Last year gas exports from Russia fell because lower economic output, due to lockdowns designed to limit the spread of the coronavirus, led to a slump in demand. This year supplies to Europe failed to increase to match the rise in demand as economies recover.

In the first 10 months of 2021 Russia supplied a total of 31,806 gigawatt hours a day of gas though its three main pipelines to Europe, Refinitiv Eikon data showed, down from 33,466 GWh/d during January-October 2020.

The Yamal pipeline has been working in reverse mode for the last five days, taking gas from the west to the east, data from Germany's operator Gascade shows.

Russian monthly exports to Europe via three main pipelines (GWh/d

Globally there has been a scramble for gas supplies, sending prices soaring particularly in Asia, which means Europe is finding it harder to attract international LNG cargos which are often directed to whichever region is willing to pay the most.

Typically gas storage sites are replenished in the summer when demand and prices are lower, but this year high prices meant less was sent to storage sites and owners with gas in storage have been keen to hang on to it in case demand and prices rise even more, leaving Europe facing winter with lower stocks than usual.


Despite lower flows state-owned gas pipeline monopoly Gazprom (GAZP.MM) has said it is fulfilling all its long-term contracts, and European companies contacted by Reuters confirmed contractual obligations had been met. read more

Russia prefers long-term gas contracts which can last for several years, over the short-term spot market which is based on one-off purchases. This is a way of ensuring it can retain market share and secure a consistent price, especially when Europe has said it is seeking new sources of gas.

Russian President Vladimir Putin said Europe’s gas crisis is partly of its own making because of the shift to short-term spot deals.


Less Russian gas has been available on the spot, day-to-day market, exacerbating the overall supply crunch in Europe.

Gazprom-controlled gas storage sites in Europe also have less gas than usual for this time of year, with Russia saying it is concentrating on replenishing domestic stocks before releasing any more gas to Europe. It expects the replenishment process to finish by Nov. 8.

Any significant changes in expectations of flows through the main Russian-EU pipelines or political declarations made by Russia can have a huge impact on daily EU gas prices.

Dutch and British benchmark prices move on Russian supply news

European benchmark gas prices hit a record 155 euros per megawatt hour (MWh) on Oct. 6 but plummeted the same day after Putin said Russia would send more gas to Europe, closing 26% down from the high at 114 euros/MWh.

Flows through the Yamal Mallnow metering point in Germany at the Polish border have been flowing eastwards since Oct. 30, pushing benchmark European prices up around 15% since last week.

Analysts have said the eastward flows could continue until Nov. 8, when Russia has said it expects its domestic storage sites to be filled. read more


Putin said last month Russia was ready to provide more gas to Europe if requested, and rejected any suggestion that Moscow was squeezing supplies for political motives. read more

EU energy commissioner Kadri Simson said the bloc had not asked more supplies from Russia, instead preferring to reach out to other trading partners.

Norway, Europe's second-largest supplier of gas, pledged in October to increase exports. read more


Russia has said Nord Stream 2, which is set to double Moscow's annual gas export capacity in the Baltic, could provide relief to the European gas market.

The route, jointly with the existing Nord Stream pipeline, will double annual export capacity to 110 billion cubic metres, around half of Russia's total gas exports to Europe a year.

The pipeline has been controversial and some European lawmakers have suggested Russia has deliberately reduced flows to Europe to stoke demand for the new project and smooth its progress. read more

Although the construction on the new pipeline has been completed, flows cannot start until it receives regulatory approval from German authorities, which could take until Spring 2022, by which time peak European winter demand will be over. read more

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Reporting by Susanna Twidale; Editing by Veronica Brown and David Holmes

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