European gas prices have surged 30 per cent in two days after Russia deepened supply cuts to the continent.
Futures contracts for delivery next month tied to TTF, the European benchmark wholesale gas price, jumped 20 per cent on Tuesday to breach €210 per megawatt hour, the highest level since early March, a day after Russia warned of lighter flows on the largest pipeline supplying the region.
Prices are more than 10 times higher than the average between 2010 and 2020. Russian energy group Gazprom said on Monday that flows on the Nord Stream 1 (NS1) pipeline would plummet to 33mn cubic meters from Wednesday because of turbine maintenance issues. That would amount to a fifth of the pipeline’s capacity and half of current levels.
“Everyone in the market was expecting Russian volumes to drop,” said James Huckstepp, manager of Emea gas analytics at S&P Global Commodity Insights, a consultancy. “But the market wasn’t expecting flows to fall this quickly.”
The rise in gas prices came as EU ministers struck a watered-down deal on Tuesday to reduce gas consumption by 15 per cent over winter with exemptions for certain member states less dependent on Russian gas.
The higher gas prices indicate the mounting pressure on Europe to seek alternative supplies to keep homes warm and industry operating through the coming winter.Failing that, politicians are warning that gas will have to be rationed for businesses, factories and even households.
Benchmark power prices in Germany were pushed to a fresh record high of €370 per MWh by the rise for gas, a fuel used to generate electricity.
Prices rarely rose to more than €60 per MWh before 2021. In a sign of the concerns about how high energy prices will affect the eurozone economy, the euro fell 0.9 per cent on Tuesday to $1.012. “We are now beyond the limits of affordability for many industrial users, and we might see recession alarms going off soon,” said Kaushal Ramesh, a senior analyst at Rystad, an energy consultancy.
NS1 recommenced the flow of gas to Europe last week at 40 per cent of capacity after returning from scheduled maintenance. But Russian president Vladimir Putin followed through on a warning that supplies would slump on Wednesday because sanctions were causing issues for turbines that needed to undergo maintenance.
Russia also announced further moves Tuesday to take over foreign ownership stakes in energy projects, saying it would acquire the stock in an Arctic oil field now held by French and Norwegian companies.
The Russian government said it approved a proposal for the Russian oil firm Zarubezhneft to acquire the stakes of TotalEnergies of France and Equinor of Norway in the Kharyaga project in the Arctic. The move gives Zarubezhneft 90% of the projects shares, and the balance are held by another Russian company.
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