With one Baltic Sea gas pipeline entering service while another became the target of an apparent act of sabotage, security concerns around energy transmission infrastructure could affect markets in many ways.
Last week, developments surrounding the Gazprom-owned Nord Stream 1 and 2 gas pipelines dominated headlines, from the discovery of leaks to the explosions which likely caused them to allegations of state-sponsored sabotage. Russian gas exports through the pipes had already been suspended all through September. While a clear political signal that the safety of energy transmission infrastructure cannot be taken for granted, the closure of the pipes means that the incident has little (short-term) effect on energy markets beyond an indication that supply through them is unlikely to increase in the near future.
Less attention-grabbing but also important is the near-simultaneous startup of the Baltic pipeline from Norway to Poland. The pipeline can boost gas supply to the northern part of Central Europe by 10 bcm/year, or just under 20% of the Nord Stream 1’s capacity (the level it was throttled to between July and August), omitting bottle-necks in north-western Europe. Just last year the new pipeline did not seem justified given Norwegian production levels, but since then, Norway has strived to fill the shortfall left by Russia. Its gas production this year could exceed last year’s by 8%, reaching a record high level of 122 bcm that it expects to maintain until 2030, following adjusted production permits for gas fields on the Norwegian continental shelf.
Understandably, the events affecting Nord Stream have put countries on edge, with many deploying military defenses and increasing monitoring around their energy pipelines and cables not just in the Baltic but as far afield as the south of Italy. Surreptitious attacks on active energy infrastructure are unpredictable and so threaten energy security in a way that sanctions and market forces cannot.
ELS Analysis is following the fundamental gas supply and demand balance in the light of the events last week. Also, signals that OPEC+ on Wednesday could decide to pre-empt the oil market loosening amid recessionary pressures by cutting supply more significantly than last month, will be followed closely for their impact on the whole energy complex.
