European natural gas prices drop as Russian flows via Turkey resume

European natural gas prices fell after Russian flows via Turkey resumed and forecasts pointed to sunnier weather that could curb demand for fuel.

Shipments via the TurkStream pipeline returned after the maintenance ended on Monday, Russia s Gazprom said on Telegram. The link connects Russian gas reserves to the Turkish gas transportation network, as well as south and southeast Europe, has an annual transport capacity of 31.5 billion cubic meters.

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After Russia cut supplies through the Nord Stream pipeline to Germany by 60%, traders are watching for any change in Russian gas flows to Europe and any possibility of reduction in consumption. The European market is tight as nations try to fill in storage sites and prepare for winter.

Energy Commissioner Kadri Simson said that the EU s gas supply situation could worsen if Russia stops gas flows in the region in the coming weeks. The bloc's projections show that while storage filling rates are currently on track to hit 90% by November 1, a cut-off would bring that level to below 75%.

All eyes are on how Europe will handle a complete stop on the Nord Stream for maintenance from July 11 -- 21. Germany is concerned that flows via the main route to Europe won't return after the work is complete, with the possibility of Russia retaliating for sanctions related to its war in Ukraine.

The group of seven leaders are pushing for more action to choke off the profits Russia makes from energy exports that are helping to fund the war. The nations are expected to instruct ministers to implement a price cap on Russian gas.

Germany - which relies on Russia for more than a third of its gas imports - is looking to import liquefied natural gas from Canada to replace Russian supplies. On Monday, German Chancellor Olaf Scholz met with Canadian Prime Minister Justin Trudeau to push for closer energy ties.

The probability of a natural gas shortfall next year in the event of a halt to Russian deliveries has dropped compared to a forecast in April, but supply risks remain, according to modeling by economists at the German Kiel Institute for the World Economy. Even if deliveries stopped immediately, there would be no gas shortage until the end of next year, the median outcome of those simulations shows.

Laura Gallacher, investment manager at Aegon Asset Management, wrote in a note that European dependence on Russian gas can be reduced, but it will take time before the current risk premium dissipates.

She said that it should be possible to remove some of the risk premium currently shown in prices by a combination of improved gas storage, an increase in alternative supply and curtailment of demand in the short term.

Dutch front-month gas futures, the European benchmark, declined by 0.6% to 128.63 euros per megawatt-hour by 11: 15 a.m. in Amsterdam. The equivalent of the UK fell by 0.5%.

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