As Russia continued to implement supply cuts on European gas and governments begin to talk about rationing, European natural gas rose 43% last week.
As shipments through the Nord Stream pipeline are sitting at just 40% of its capacity, benchmark futures jumped by as much as 8.9%. Gazprom PJSC Chief Executive Officer Alexey Miller warns the supply will likely remain limited, as there is still no way to get the turbines necessary to perform repairs and restore full capacity due to the western sanctions preventing the shipment of the turbines.
That means Europe is having trouble refilling storage tanks in preparation for fulfilling the massive winter demand on gas for heat.
European leaders accuse Russia of cutting the supply as a form of political blackmail. Russia meanwhile says it merely needs the turbines, and when they are returned, the gas flow will be restored.
Germany’s Economy Minister Robert Habeck said, “Security of supply is currently guaranteed. But the situation is serious.” The government has asked Germans to reduce consumption, as the government has begun to ramp up older coal plants to supply electricity, to lessen the demand on gas.
Meanwhile, at the Freeport LNG plant in Texas, a fire has halted all exports, cutting Europe off from yet another critical supplier. And as China opens up and Asia completes its emergence from lockdown, Europe also finds itself having to compete with Asia for shipments.
And on top of all that, the TurkStream pipeline which supplies Russian gas to some southern European countries will be shut June 21-28.
Consultant Timera Energy said, “This renewed market stress comes as a warning of how difficult an orderly near-term transition from Russian gas will be. 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, which is only receiving a fraction of the gas it requested from Russia is on the cusp of activating the first phase of an emergency gas plan which would see the government asking companies to voluntarily limit energy consumption.
All of this is happening as high prices inflict demand destruction. European gas demand was about 9% lower in May than it was a year prior. Switches to coal, and voluntary reductions in consumption are reducing demand.
The European benchmark, Dutch front-month gas futures, finished up 2.5% at 120.63 euros per megawatt-hour in Amsterdam.
