European gas prices surged to their highest levels in a year on Thursday after Austrian energy firm OMV issued a warning about a potential disruption in gas supplies from Russia.
Futures for the European benchmark, TTF, jumped by up to 5% to €46 per megawatt-hour in early trading in Amsterdam, before slightly pulling back.
The price hike followed OMV’s announcement late Wednesday that a “potential halt of gas supply” from Russia could occur. This warning came after the Viennese energy and chemicals group was awarded €230 million in an arbitration ruling against Gazprom, Russia’s state-owned energy giant.
OMV had previously raised concerns about “irregular” gas deliveries from Gazprom into Germany, which eventually stopped altogether in September 2022.
In response to the ruling, OMV said it would offset the awarded amount against future invoices under its contract with Gazprom, effective immediately. However, the company cautioned that this could strain its contractual relationship with the Russian energy supplier.
Europe’s gas market has been highly sensitive to any disruptions in supply since Russia began reducing deliveries to Europe in 2021, ahead of its invasion of Ukraine. Recent incidents, or threats of disruptions, to global gas supplies have caused significant price fluctuations in Europe.
While Austria and Slovakia still receive Russian gas through Ukraine, a transit agreement allows the gas to pass through the war-torn country, the deal is set to expire at the end of the year. This route is one of the last two remaining pipelines supplying Europe with Russian gas, providing about 5% of the EU’s annual imports.
Analysts have warned that if Gazprom halts supplies in retaliation for OMV’s actions, the volumes through the Ukraine transit route could be nearly halved. This will likely become clear in the coming week.
Tom Marzec-Manser, head of gas analytics at consultancy ICIS, explained that Gazprom’s customers typically make payments around the 20th of each month. If OMV withholds its next payment, which is expected to be around €213 million, Gazprom could decide to terminate the contract immediately.
The timing of the warning is particularly sensitive, as colder weather begins to set in and heating demand across Europe rises. According to data from Gas Infrastructure Europe, EU gas storage facilities have experienced net withdrawals for the past 10 consecutive days.
OMV reassured the market that it could still fulfill energy contracts, as it had diversified away from Russian-sourced gas. Austria’s energy minister, Leonore Gewessler, also stated on social media that OMV’s actions “do not pose an immediate threat to our security of supply.” However, she acknowledged that “a sudden interruption in supply could cause tension on the gas markets.”
In anticipation of the Ukraine transit agreement expiring, Slovakia’s largest energy provider, SPP, announced on Wednesday that it had signed a “short-term, pilot contract for the supply of natural gas” with Azerbaijan’s state oil and gas company Socar.
SPP emphasized its support for continuing gas transportation through Ukraine, as it is the most cost-effective option for customers. However, due to the risk of disrupted supplies via the eastern pipeline, the company is taking proactive steps to ensure a secure gas supply for its customers.
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