European gas prices have jumped 30 percent in two days after Russia stepped up supply cuts to the continent in Moscow’s latest attempt to shore up energy supplies.
Futures contracts for delivery next month linked to TTF, Europe’s benchmark wholesale gas price, rose 20 percent on Tuesday to breach 210 euros per megawatt hour, the highest level since early of March, a day after Russia warned of lighter flows in the largest gas pipeline supplying the region. Prices are more than 10 times higher than the average between 2010 and 2020.
State-backed Russian energy group Gazprom said on Monday that flows from the Nord Stream 1 (NS1) pipeline would drop to 33 million cubic meters from Wednesday due to turbine maintenance problems. That would be a fifth of the pipeline’s capacity and half of current levels.
“Everyone in the market expected Russian volumes to go down,” said James Huckstepp, manager of Emea gas analytics at S&P Global Commodity Insights, a consultancy. “But the market did not expect flows to fall so quickly.”
The rise in gas prices came as EU ministers reached a watered-down deal on Tuesday to cut gas consumption by 15 percent over the winter with exemptions for some member states less dependent on Russian gas.
Higher gas prices signal growing pressure on Europe to find alternative supplies to keep homes warm and industry running through the coming winter. Otherwise, politicians warn, gas will have to be rationed for businesses, factories and even homes.
Benchmark energy prices in Germany were pushed to a new record high of €370 per MWh by the rise in gas, a fuel used to generate electricity. Prices rarely rose above €60 per MWh before 2021.
In a sign of concern about how high energy prices will affect the eurozone economy, the euro fell 0.9 percent on Tuesday to $1.012.
“We are now beyond the limits of affordability for many industrial users, and we could see recession alarms going off soon,” said Kaushal Ramesh, senior analyst at Rystad, an energy consultancy.
NS1 restarted gas flow to Europe last week at 40% capacity after returning from scheduled maintenance. But Russian President Vladimir Putin followed up with a warning that supplies would drop on Wednesday because sanctions were causing problems for turbines that needed to be maintained.
European politicians have denounced the Kremlin’s moves as “weaponizing” the continent’s gas supply. Ukrainian President Volodymyr Zelenskyy added to the criticism late Monday, accusing Moscow of “gas blackmail” against Europe.
Russia blamed sanctions for the drop in flows. Kremlin spokesman Dmitry Peskov told reporters that a key turbine for NS1 was underway after maintenance and was expected to be installed “sooner rather than later.”
But he added: “The situation is critically complicated by the restrictions and sanctions that have been imposed on our country.”
European gas prices closed up to 215 euros per MWh in the first days of the Russian invasion of Ukraine. Prices settled somewhat in the following weeks, but have recovered since June, when the Kremlin signaled its willingness to leave Europe without gas.
Toby Copson, managing partner at Trident Markets, a gas trading firm, said global gas prices were likely to feel further upward pressure as China came into the market to buy supplies for winter
“It has all the conditions for a crisis in every way,” he said. “There is not enough supply, not enough has been pumped into storage recently and it is a disaster situation that Europe is in.”