Europe’s gas crisis escalated on Monday with prices soaring further as traders warned of the risk of additional Russian supply cuts and growing competition with Asia for seaborne cargoes of liquefied natural gas.
The benchmark TTF gas price in Europe rallied more than 10 per cent to a high of €290 per megawatt hour and is on course to notch up its highest closing price on record. In the UK, gas prices for next-day delivery surged as much as 33 per cent to £4.80 a therm.
The rise in European TTF prices to more than 14 times their average of the past decade may crimp industrial production in mainland Europe and push the region into recession, traders and economists have said. Widespread fears of shortages this winter have led gas users to try to lock in supplies, pushing up prices even as fears of a severe economic slowdown grow.
Gas traders said the latest surge had been triggered by an announcement by Russia’s state-backed gas monopoly late on Friday that it was planning maintenance on the Nord Stream 1 pipeline to Germany early next month.
Gazprom has already slashed capacity on the line to just 20 per cent of the norm, triggering a more than doubling in gas prices in mainland Europe since June, with European officials accusing Moscow of “weaponising” supplies following the invasion of Ukraine.
There are fears that any maintenance could be used as a pretext for a prolonged shutdown of the line, with Moscow having blamed the capacity reduction on western sanctions interrupting its normal maintenance schedule.
“There are some in the market who expect flows on Nord Stream 1 to not return after the September maintenance,” said James Waddell at Energy Aspects.
“We need to see significant additional demand destruction in that scenario to guarantee enough supplies for priority consumers like households and essential services, so without further curtailments in consumption being mandated by governments we risk seeing increasingly extreme prices.”
Given the elevated level of gas prices, a 10 per cent daily rise now creates an enormous change in the absolute level of gas prices. It sets a gloomy tone ahead of winter as many governments prepare to shield their populations from the worst of the gas shock. UK prices have been lower than Europe — at the equivalent of $57 and $85 per million British thermal unit respectively — but are expected to rise over the winter.
Investment bank Citigroup warned on Monday that UK inflation was likely to hit almost 19 per cent early next year as a result of soaring gas prices, with the typical household energy bill predicted to approach £6,000 a year under the UK’s price cap system, almost five times the level at the start of this year.
Gas prices in Europe were also responding to a surge in the price of liquefied natural gas in Asia, where state-backed utilities are starting purchases ahead of the winter. Europe needs to compete with large Asia LNG importers such as China, Japan and South Korea to secure the limited amount of LNG cargoes not tied up under long-term supply agreements.
LNG prices in Asia have risen above $57 per million BTU, with some cargoes being offered at about $60 per million BTU.
In the US, which is exporting large volumes of LNG, gas prices have also risen sharply but remain well below levels seen in Europe, trading at just $9.50 per million BTU.