European natural gas prices extended gains as Russia signaled deeper supply reductions through its biggest pipeline to the continent.
One more turbine at an entry point of the Nord Stream pipeline to Germany is being halted, lowering flows to 67 million cubic meters a day from 1:30 a.m. local time on Thursday, Russian exporter Gazprom PJSC said. That follows a reduction announced a day earlier citing issues with repairs of turbines produced by Siemens, and brings the total cut in supply through that link to 60%.
“Gazprom’s decision to further cut capacity on Nord Stream 1 will have seismic ramifications for the European and global gas market,” said Tom Marzec-Manser, head of gas analytics at ICIS in London. “It will be increasingly hard for storages to be refilled ahead of the winter. The key question now is for how long these lower Russian flows will persist.”
Benchmark futures rose as much as 25% as Russia’s move deepens political tensions with Europe, with German Economy Minister Robert Habeck saying Moscow was trying to unsettle markets. It also adds to a supply crunch already created by an outage in the US. 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.
The reductions 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 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.
“This will make it harder for Europe to meet its storage targets this summer as the region is now losing supply from the east and the west, and the continent could be in for a winter season of sustained high prices as a result,” said Xi Nan, vice president for gas and LNG markets at Rystad Energy A/S.
Dutch front-month gas futures, the European benchmark, hit 121.74 euros per megawatt-hour, the highest intraday level since April 27, and were 22% higher at 118.49 euros by 5:22 pm in Amsterdam. The UK equivalent jumped as much as 34%.
