EUROPEAN GAS PRICES RISE

BLOOMBERG - June 20, 2022 - European natural gas prices rose after rallying 43% last week as Russia’s steep supply cuts put governments on high alert amid a mounting possibility of rationing. 

Benchmark futures rose as much as 8.1%, with shipments via the Nord Stream remaining at just 40% of capacity. Supply is likely to remain curbed with Gazprom PJSC’s chief Alexey Miller warning there’s no solution for now for issues with the gas turbines essential for the functioning of the pipeline. That’s forcing major European consumers to withdraw gas from the reserves they have been building for the winter when demand typically peaks.

Shipments to top buyers in Germany, Italy and France have been curbed, prompting the European Commission to say Russia is using its energy for “blackmail.” Leaders of Italy, and Germany -- who traveled to Kyiv last week just as Gazprom was tightening its grip on European supply -- have also accused Moscow of deliberately cutting out shipments.

“Security of supply is currently guaranteed. But the situation is serious,” Germany’s Economy Minister Robert Habeck said. The government has asked Germans to reduce consumption and plans to rely more on its coal plants to keep the lights on as gas supply remains uncertain.

Europe has been scouring the world for extra shipments, and boosting imports of liquefied natural gas to fill any shortfall. But a prolonged outage at the Freeport LNG plant in the Texas has made fewer cargoes available from the US, which the continent was depending on to fill storage sites. It’s also having to compete with Asian buyers for cargoes at a time when the global market is stretched.

“This renewed market stress comes as a warning of how difficult an orderly near-term transition from Russian gas will be,” consultant Timera Energy said. “Europe will need to battle with Asia and Latin America for any incremental LNG supply to facilitate reduction of Russian pipeline imports. That means higher prices as we saw last week.”

Italy’s Eni SpA, one of the European buyers that have seen their Russian supplies curbed, will have its deliveries on Monday only partially confirmed. The country may trigger its emergency gas plan as soon as this week if Russia continues to curb supplies, a move that may involve asking companies to voluntarily limit energy consumption, according to people familiar with the situation.

Germany’s Uniper SE, the biggest buyer of Russian gas in Europe, was receiving 60% less than it ordered last week, while France’s Engie SA and Austria’s OMV AG have been hit.

Dutch front-month gas futures, the European benchmark, were up 7% at 126 euros per megawatt-hour as of 9:49 a.m. in Amsterdam. The UK equivalent gained 5.1% to 212 pence a therm.

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