European Gas Prices Surge on Delays to New Russian Pipeline
European natural gas futures jumped to near a four-week high on delays in starting up a controversial new pipeline from Russia.
The German regulator said Tuesday it suspended the certification procedure for the Nord Stream 2 project because the operator should set up a German subsidiary, which will be the owner of the section of the pipeline in the country. The permitting process has been halted until assets and people are transferred to the new unit.
Benchmark European gas prices surged as much as 19% as the move adds to the uncertainty over how much of the fuel the energy-hungry market will have this winter. Many in Europe expect Russia to significantly increase supplies only when the pipeline is approved.
Read also: Europe at Risk of Blackouts This Winter, Trafigura Boss Warns
“The start date of the Nord Stream 2 pipeline has been thrown into doubt,” Stefan Ulrich, an associate in BloombergNEF’s European gas team, said in a note. “It is likely that a tight European gas market will persist and have to get through the early stages of the gas winter without the pipeline.”
Fuel shipments from Gazprom PJSC have recovered after a slump at the start of this month but are still far below last year’s levels. The company signaled on Monday it has little appetite for increasing next month’s gas volumes that transit through other territories into Europe.
“Gazprom’s reluctance to acquire short-term transmission capacity to increase or even maintain its flows across Ukraine and Poland has led to discussions on potential linkages to the possible entry into operation of the Nord Stream 2 pipeline,” the Agency for the Cooperation of Energy Regulators said in a market report published this week.
Dutch month-ahead gas traded 18% higher at 94.32 euros a megawatt-hour as of 5:30 p.m. in Amsterdam. The U.K. equivalent gained 17% to 239.50 pence a therm.
Prices have increased more than threefold this year as European inventories remain below normal after a prolonged winter last season. Besides lower Russian supplies, patchy domestic production and high Asian demand for liquefied natural gas have also contributed to the region’s energy crisis.
Adding to the bullish development, temperature forecasts were revised lower for the coming weeks. China also signaled it’s preparing for fuel shortages in some areas, meaning competition for LNG between Europe and Asia will remain intense.
EUROPE WEATHER: Cold Outlook Persists for Northwest Next Week
“We haven’t got enough gas at the moment quite frankly,” Jeremy Weir, chief executive officer of Trafigura Group said at an conference Tuesday. “There is a real concern potentially, if we have a cold winter, we could have rolling blackouts in Europe.”
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