By Alex Kimani
European gas prices have surged 30% in the space of two days after Russia made good its threat to slash gas deliveries to the continent in half from already reduced levels. After Tuesday’s surge, Wednesday saw another 9% hike in natural gas prices, nearing the record high reached in March shortly after Russia invaded Ukraine, the Independent said, citing market observers.
Futures contracts for August delivery tied to the European benchmark wholesale gas price TTF jumped 20% on Tuesday to exceed €210/MWh, representing a more than 10-fold increase from the average during 2010-20. Not surprisingly, benchmark power prices in Germany have soared to an all-time high of €370/MWh, a big jump compared to sub-€60/MWh prices that were the norm before 2021.
“We are now beyond the limits of affordability for many industrial users, and we might see recession alarms going off soon,” Rystad analyst Kaushal Ramesh told the Financial Times.
Russia’s national oil company Gazprom cut supplies on the Nord Stream 1 pipeline by half to 20 percent of full capacity on Wednesday, putting extra pressure on already badly stretched supplies. The European Union views the move as an attempt to pressure the bloc to lift sanctions brought against Putin’s government.
Previously, Gazprom cut supply to 12 European countries through Nord Stream 1–which runs west through the Baltic Sea to Germany–to 40 percent capacity for weeks. Gazprom notified of the plunge on Monday, citing the delayed return of a gas turbine for a compressor station from Canada and blaming western sanctions for the snafu.
Economists are now warning that the continent’s gas prices may remain elevated for years to come.
“Given the constraints on securing natural gas from alternative suppliers, we expect Europe to struggle to meet its gas needs, which will keep the TTF price elevated for some time yet. This has the potential to derail Europe’s efforts to fill its storage to 80% of capacity by November (ahead of the winter-related surge in demand),” Capital Economics analyst Jennifer McKeown told Morningstar.
By Alex Kimani for Oilprice.com