Gas heading for another weekly rise intensifies Europe’s pain
NATURAL gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, and threatening to push economies into recession.
Benchmark futures rose on Friday(Aug 19) after closing at a record high in the previous session. The market has further tightened in recent weeks as extremely hot and dry weather disrupts fuel transportation via rivers and limits hydroelectric and nuclear power production. Demand for gas is rising as a result at a time when Russian supply cuts are already slamming the region.
It’s been an unusual and difficult summer for Europe. Prices and demand typically ease during the warmer months, allowing the continent to pump gas into storage and prepare for the winter. But Moscow’s supply reduction through all major pipeline routes and searing heat waves have kept gas prices about 11 times higher than they usually are this time of the year.
“Abnormally high and extended dry spells are likely to be near-term multipliers in Europe’s energy crisis, with suppressed power sources increasing demand for gas and stoking upward price pressure,” Bloomberg Intelligence analysts wrote in a report.
The Dutch front-month contract, the European benchmark, was 0.8 per cent higher at 242.99 euros(S$340.26) a megawatt-hour at 9.58 am in Amsterdam, reversing an earlier decline. It is heading for a fifth straight weekly gain, the longest stretch since mid-December.
The high prices have already forced about half of Europe’s zinc and aluminum smelting capacity to shut down over the past year, and more is set to go offline.
Germany, among the worst affected, is risking an industry exodus as manufacturers of car parts, chemicals and steel struggle to absorb the energy prices. The government has urged consumers to lower demand, and on Thursday cut sales tax on gas to temporarily ease the burden.
Low water levels in the Rhine River has lead Shell to cut production at its Rhineland oil refinery in Germany, the nation’s biggest oil-processing complex. Navigability through Europe’s most important commercial waterway has been hampered in recent days, but some respite may be seen during the weekend as water levels at a major point are expected to rise.
A prolonged and severe drought in Spain and Portugal is pushing baseload hydroelectric output to historical lows, prompting increased calls for gas-fired power, according to Bloomberg Intelligence. BLOOMBERG
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