Europe gas extends losses as politicians rush to contain crisis
EUROPEAN natural gas prices erased earlier gains, with traders weighing supply risks against regional moves to stem the effects of the worst energy crisis in decades.
Benchmark futures dropped as much as 6.2 per cent, following wild moves in recent days. Russia’s decision to indefinitely shut its key Nord Stream pipeline to Germany last week has forced European governments to plan market interventions.
Germany wants power-price caps within weeks. Poland is seeking to limit prices on all gas imports. Liquidity is also set to be a focus of the talks of energy ministers at a meeting in Brussels on Friday.
Higher fuel stockpiles, strong inflows of liquefied natural gas and mild weather – which is expected through the next month – have helped to keep prices in check, following August records. But worries remain over how Europe will replace lost supplies from Russia when it gets cold and demand rises. There’s also much uncertainty on Moscow’s next moves and competition with Asia for LNG during cold months.
Supplies from Norway, which has replaced Russia as Europe’s top gas suppler, have also been curbed due to seasonal maintenance. Flows from the Nordic country are bottoming out at the lowest since mid-July on Wednesday because of the works. They will wrap up next month, but for now it’s cutting Europe’s options to boost gas inventories.
“The European energy sector continues to be shocked by price volatility and uncertainty over energy balances for the coming winter,” analysts at Rystad Energy said in a note. “A worst-case scenario with very cold weather, low wind generation, and a 15 per cent cut in gas-for-power demand would prove very challenging for the European power system, and could lead to power rationing and blackouts.”
Dutch front-month gas, a benchmark for Europe, traded 5.5 per cent lower at 226.64 euros (S$316.08) per megawatt-hour by 9.31 am in Amsterdam. The UK equivalent fell 5.4 per cent, also giving up earlier gains.
Benchmark German next-year power declined 3.8 per cent to 515.50 euros per megawatt-hour. BLOOMBERG
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