Natural gas prices in Europe jumped after Russia stepped up an energy war by cutting supplies through the largest link to the continent to less than half of its usual volumes.
Benchmark futures increased more than 12%, adding to the 44% rise in the previous two sessions. The cuts are rippling through Europe with Engie SA, Uniper SE and OMV AV saying they are getting less supply. Germany has called the reductions through the Nord Stream pipeline “politically motivated” and aimed at unsettling markets, challenging Gazprom PJSC’s statement that the halt was due to technical issues.
European nations have for months feared Russian supply cuts in retaliation for sanctions aimed at Moscow for its invasion of Ukraine. The latest crisis could drive surging inflation even higher. Germany has already triggered the first stage of a three-step emergency plan to ensure security of supply, and may be forced to go further if the reductions deepen. The country, however, has said it can for now secure alternate supplies.
The Russian cuts announced on Wednesday follow reductions the previous day after Gazprom cited issues with repairs of turbines produced by Siemens. Western sanctions on Russia have left equipment key for the functioning of the Nord Stream gas pipeline stuck abroad.
Supply through the link is expected to drop to just under 65 million cubic metres a day on Thursday, according to nominations data. That brings the total cut through Nord Stream to about 60%.
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The latest crisis adds to a supply crunch already created by an outage in the United States. A major liquefied natural gas export facility in Texas -- a vital source of supply for Europe -- will remain shut for longer than initially anticipated following a fire last week.
They come just as a bout of intense heat that’s gripping Europe drives up gas demand for cooling. The continent, which has relied on US liquefied natural gas (LNG) to fill the gap resulting from lower Russian flows, may have to compete more fiercely with Asian buyers to secure spare supply as they rush to replenish storage facilities before demand peaks again in the winter.
Dutch front-month gas futures, the European benchmark, were 10% higher at 132.70 euros per megawatt-hour by 9.56am in Amsterdam. Prices earlier rose to the highest intraday level since March 11. The United Kingdom equivalent gained 11%.
The cuts are stoking prices in Asia too. Asian spot LNG prices on Thursday were seen rising above US$30 per million British thermal units for the first time since April, according to traders. That’s the highest level for this time of year, and a roughly 50% jump in the last month.
Further disruptions to gas or LNG flows could amplify price moves. “If we get another outage like what happened at the Freeport LNG in the US prices could easily jump another 50%,” said Ron Smith, senior oil and gas analyst at BCS Global Markets.
