European natural gas prices jump as sanctions spur energy-shortage concerns

[DUBAI] European natural gas surged after another round of sanctions on Russia over the weekend fuelled concerned about energy shortages.

Futures jumped as much as 36 per cent on Monday as Western nations agreed to impose new penalties after the initial ones failed to persuade President Vladimir Putin to withdraw his forces from Ukraine. While the decision excludes energy, there are fears there's more to come, and that Russia could retaliate.

Europe relies on Russia for about a third of its gas, with many of those shipments flowing through pipelines crossing Ukraine. Any disruption to those flows could leave Europe freezing in the winter and curb the continent's ability to produce enough electricity to meet demand, forcing energy-intensive industries from metals smelters to fertiliser makers to slow or shut production.

"The additional sanctions may prompt retaliation from Russia, which could cut energy imports to Western Europe," Neil Shearing, chief economist at Capital Economics, said in a report.

Under the sanctions agreed, some Russian lenders will be excluded from the SWIFT bank messaging system, used for trillions of dollars worth of transactions around the world. The penalties will also target the central bank's foreign reserves. Some banks are already pulling back financing for the trading of commodities including oil and metals from Russia, a move that could roil markets.

The sanctions will "substantially reduce" the ability of Russia's central bank to sell foreign assets to support the rouble, Shearing said. It will also curb the ability of Russia firms to service forex-denominated liabilities.

European gas prices climbed to 128 euros a megawatt-hour, before trading 15 per cent higher at 109 euros before 9 am in Amsterdam. German power for next year, a European benchmark, gained as much as 13 per cent to 165 euros (S$250.50) a megawatt-hour.

Concerns industrial activity will slow down sent carbon prices plunging as much as 9.1 per cent to 80.12 euros a metric ton.

Officials from Kyiv plan to meet Russian counterparts later on Monday, even as Ukrainian President Volodymyr Zelenskiy voiced skepticism that talks near the Belarus border would yield results.

BLOOMBERG