European gas prices are likely to see further price volatility as the 10-day shutdown of Russia’s main pipeline Nord Stream 1 for planned maintenance begins, said Fitch Ratings.

And if Russian gas flows following the Nord Stream 1 maintenance do not resume, as German authorities fear, there will be further energy saving measures, higher prices and potentially reduced production in some industries, especially in late autumn and in winter, the ratings agency said in a note. 

"High natural gas prices will add to the pressure on margins and cash flows of European companies, which are already at risk for natural gas shortages, rising inflation and waning market sentiment on slower economic growth. Prices remain heavily influenced in the near term by decreased Russian gas supplies to Europe," the agency said.

Upstream oil and gas companies are, on the other hand, the largest beneficiaries of the current market situation.

Russia has already reduced production to 40 percent of the pipeline's capacity, which has helped to push up European and British gas prices. Benchmark contracts are trading around 350-400 percent higher than this time last year, according to Reuters.

Dutch Title Transfer Facility (TTF) next hour gas price currently trades at around $55/mcf (million cubic feet), up from $20/mcf in early June. This contrasts sharply with Fitch’s assumption for 2022 of $25/mcf, and long-term price assumption of $5/mcf.

Lower flows in one pipeline are usually balanced out by higher flows elsewhere, but that may not be an option this time since flows of natural gas from Russia via Slovakia continue to be lower than earlier in 2022 and in 2021, the agency said.

(Writing by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@lseg.com