Factbox: Gas prices surge as fears grow Russia will cut off European gas supply

Gazprom's decision to suspend natural gas deliveries to Poland and Bulgaria April 27, after they refused to pay for Russian supplies in rubles, has sent prices soaring and raised concerns more customers in Europe will be cut off.

S&P Global Commodity Insights sees the move as setting a precedent, making it more likely that other contracts are canceled over the coming months.

The TTF front-month price surged by 28% in early trade to as high as Eur125/MWh April 27. The contract was last assessed on April 26 by S&P Global Commodity Insights at Eur98.03/MWh.

Below are factors to watch:

Trade flows

-- Russia is the main supplier of pipeline gas to Europe. Halting supplies to Poland and Bulgaria has raised concerns over a widening embargo

• Poland's PGNiG imports Russian gas under a long-term import contract due to expire at the end of 2022. It imported 9.9 Bcm of Russian gas in 2021, meeting around 63% of demand. Q1 2022 Russian imports accounted for around 53% of consumption.
• Bulgaria imports Russian gas under a 10-year agreement for supplies of up to 2.9 Bcm/year of gas due to expire at the end of 2022.

-- Of the EU member states, only Hungary has publicly said it would have no issue paying for Russian gas in rubles.

• Bulgaria warned April 27 that it would review its gas transit agreement with Gazprom in light of the suspension in supplies, which could impact Russian gas deliveries to Hungary and Serbia, among others.
• Ukraine remains a key transit route for Russian gas to Europe, accounting for a little under 10% of Europe's gas demand in 2021.

-- In the immediate aftermath of Russia's invasion, Ukraine transit volumes rose to maximum contractual levels of around 110 million cubic m/d, as Gazprom-contracted gas became more competitive versus hub gas. Since mid-April volumes have dropped. They are planned at 48.7 million cu m for April 27, according to Gazprom data.

• Gazprom's agreement with Ukraine's Naftogaz includes transit volumes of a minimum of 110 million cu m/d of gas via Ukraine to Europe under ship-or-pay terms in 2022.
• Poland, Bulgaria say no consumption limits currently required in response to the cut off

Prices

-- Gas prices in Europe have surged amid growing uncertainty over supplies from Russia and threats of widening shut offs if customers refuse to pay for supplies in rubles.

• Confirmation April 27 of the supply suspension to Bulgaria and Poland saw the TTF front-month price surge by 28% in early trade to as high as Eur125/MWh. The contract was last assessed on April 26 by S&P Global Commodity Insights at Eur98.03/MWh.
• The TTF month-ahead price hit a record high of Eur212.15/MWh on March 8, according to S&P Global Commodity Insights assessments, a 1,190% increase year on year, as the fall-out from Russia's invasion of Ukraine on Feb. 24 continued to roil markets.

-- Prices have been highly volatile for the past two months, with big swings in price witnessed when Russia first outlined its new ruble payment mechanism in March.

• "Payment in the proper format will be the basis for continuing deliveries," warned Kremlin spokesperson Dmitry Peskov, in comments reported by the Prime news agency.
• German energy minister Robert Habeck said April 27 that up to 45 Bcm/year of Russian gas would need to be substituted to sever dependence on Moscow.

Infrastructure

-- Poland and Bulgaria both said they have enough storage, or alternatives to Russian gas.

• Polish climate minister Anna Moskwa said the country has the necessary gas reserves and sources of supply and gas stocks are 76% full.
• Poland also transits Russian gas via the Yamal-Europe pipeline, taking volumes at the border with Belarus at Kondratki and transiting the gas onto Mallnow on the border with Germany. However, flows into Mallnow have been mostly zero since late 2021 and gas regularly moves instead in the reverse west-east direction.
• Since the start of 2020, Bulgaria has imported its Russian gas via the TurkStream pipeline. It also imported some 500 million cu m of gas from Azerbaijan via the Southern Gas Corridor last year.
• Bulgaria says it has alternatives to Russian gas, including capacity in the Trans-Balkan pipeline that could be used in reverse flow, importing regasified LNG landed at Greece's Revithoussa terminal, and increasing supplies via the Southern Gas Corridor.
• Hungary and Serbia are dependent on transit via Bulgaria. Belgrade urged Bulgaria to continue transiting gas from TurkStream to Serbia, in the event that Bulgaria stopped importing Russian gas for its own needs.

-- The EU has proposed new rules on storage, with facilities now considered "critical infrastructure" for ensuring security of supply. The European Commission has proposed a new mandatory certification of all storage system operators and a requirement to fill storage sites to 80% capacity by Nov. 1 this year.

• The Ukraine conflict is driving interest in LNG capacity. LNG terminals in the EU could provide a gateway for more than 3,000 TWh (285 Bcm) of imports by 2030, enough to meet estimated import demand at that time, industry group Gas Infrastructure Europe said April 25.
• The EU currently has 21 LNG import terminals -- 16 onshore plants and five offshore facilities -- with a total capacity of some 1,920 TWh/year.