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If Russia blocks the European gas supply, this is what will happen according to Morgan Stanley

Experts fear that price fluctuations could fuel gas abandonments.

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As a result of Russia’s supply decreasing by about 80% over the past two years, European countries have been trying to stock up on gas in preparation for winter.

Morgan Stanley analysts say that while the majority of the drop in European gas supply from the Nord Stream 1 pipeline has already occurred, the remaining 20% is “important swing factor in any supply/demand modelling.”

It is predicted that by the end of the next gas year (beginning in October), the supply of available gas will have decreased by another 11%. They brought up the fact that supply from other regions is “broadly maxed out,” citing examples like Norway, the United Kingdom, and North Africa, and questioned whether demand can fall quickly enough.

On Wednesday, the analyst team led by equity analyst and commodities strategist Martijn Rats voiced their concern over a statement made by state-owned gas provider Gazprom last week, in which it was announced that gas supplies into Europe would be cut off for three days via the pipeline’s main pipeline due to maintenance on the pipeline’s only remaining gas compressor, Trent-60.

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The Nord Stream 1 pipeline will be offline from August 31 to September 2.

They said this winter will be “manageable” because of countries like Italy and Germany stockpiling in anticipation of the pipeline shutdown, but that next winter and the one after that could be “exceptionally tight.”

In a note to clients on Wednesday, the team said, “If Nord Stream 1 flows fall to zero, this winter’s inventories should also still be manageable.”

But if the flows don’t improve next year, the cumulative loss will make 2023/24 a very difficult winter.

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They also sounded a note of caution about how low LNG imports into China have allowed Europe to make heavy use of LNG. There could be more shortages in the LNG market if China decided to raise the import threshold once it is free of COVID restrictions. Furthermore, they admitted that demand was unclear.

Given that “prices have reached unprecedented levels,” it is difficult to predict the exact impact, according to the analyst note.

On Thursday, the price of Dutch TTF gas futures increased by another 7 percent, to 298 euros per megawatt hour. This brings the price increase for the year to a staggering 321%.

On Friday, analysts from Bank of America published a client note in which they reached similar conclusions, speculating that if the Nord Stream 1 pipeline were to be shut down entirely, European gas stocks would be “exhausted” by year’s end.

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Assuming the same gas flow rate of 20% is maintained, “we project the same outcome just one winter later in 2023/2024,” they added.