(Bloomberg) -- Russian gas flows to Europe dropped sharply this week as some buyers under long-term deals have already hit their contracted supply limits for the year, according to people with direct knowledge of the matter.
European benchmark gas futures soared to a record Tuesday as Gazprom PJSC's exports through a major transit route to Germany halted. The supply drop was due to a decrease in client requests for the fuel, said the people, who declined to be identified because the matter is private.
Gazprom and its customers typically arrange a minimal volume that must be supplied and paid for each year under a pre-set formula that, this year, allowed much lower prices than those at trading hubs. If a buyer wants more gas, they have to pay the prevailing market rate, which topped 180 euros a megawatt-hour this week from less than 20 euros at the start of the year.
Europe's gas prices soared about 20% this week as the reduced shipments from Russia reinforced concerns of a worsening winter energy crisis. Freezing temperatures across the continent before Christmas is boosting heating demand and cutting into already record-low gas inventories.
Uniper SE, one of several major buyers contacted by Bloomberg, said both the German energy company and the Russian exporter have fulfilled their mutual supply agreements for this year. German utility RWE AG said Gazprom has met all its contracts.
Gazprom said this week that it delivers gas to Europe “fully in compliance with the current contract obligations.” Russian President Vladimir Putin said in October that Russia could potentially export record volumes of the vital fuel to Europe this year, although current figures show Gazprom is on course to miss its target for 2021 volumes.
Gazprom's clients will probably have more flexibility on volumes in their long-term contracts next month. More liquefied natural gas cargoes heading to the region could ease prices after the holiday season. Yet, current pipeline bookings from Russia to send gas to Europe in January remain limited, meaning the market will remain on edge for now.
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