European Gas Prices Jump 20% as Russia Keeps Volumes Capped

(Bloomberg) -- Natural gas prices in Europe surged on Monday as reduced flows from Russia again caused uncertainties about Europe’s supply security in the winter months.

Benchmark European gas for next month jumped as much as 20% to 84.50 euros a megawatt-hour, after falling earlier. Russian flows via a key route through Ukraine dropped. Meanwhile, supply concerns were exacerbated by potentially growing gas demand in Asia which could result in the region attracting liquefied natural gas cargoes, leaving Europe once again starved for the fuel. 

“While Russian pipe supply to northwest Europe has been incredibly low since the start of the new year, should this persist in the coming days this will undoubtedly provide bullish support once demand begins to pick up again,” said Tom Marzec-Manser, an analyst for European gas and LNG at pricing agency ICIS.

European gas remains highly volatile, with prices rising to record-highs before Christmas as Russian flows to the region fell. They then dropped sharply in the last days of the year as additional U.S. LNG tankers headed toward Europe, bringing some brief relief to tight markets.

Russia Sends Less Gas to EU as Buyers Hit Supply Limits Early

Current pipeline bookings from Russia to send gas to Europe remain limited, meaning the market will stay tight for now, leaving Europe to rely on its depleted inventories and more LNG. 

Gas flows via a key route exiting Ukraine, through Velke Kapusany in Slovakia, dropped. Requests for the fuel fell 70% to about 276 gigawatt-hours a day, the lowest level since February, according to system operator Eustream. 

Gas shipments into Germany via Russia’s Yamal-Europe link have been halted for 14 days. Day-ahead bookings show flows may remain halted on Tuesday because Gazprom didn’t book any entry capacity again. Gazprom PJSC has been sending only as much fuel to European Union clients as it’s obliged to under existing long-term contracts. 

Gazprom said it increased exports to its main buyers in Europe, Turkey and China last year, yet flows remained below pre-pandemic levels as the producer capped deliveries to Europe as a whole, amid the continent’s worst energy supply crunch in decades.

Indonesia, one of the world’s largest thermal coal exporters, on Saturday halted shipments to secure dwindling supplies for domestic power plants. The decision could increase LNG demand from China, India, Japan, and South Korea, which combined received 73% of Indonesian coal exports in 2021, Engie EnergyScan wrote in a report on Monday.

EUROPE GAS OUTAGES: Barrow North Capacity Curbed Until Tuesday

Global LNG exports jumped to a record last month as projects ramped-up output and utilities boosted imports to restock inventories, according to ship-tracking data compiled by Bloomberg. Qatar, the U.S. and Australia -- the world’s top three exporters of the super-chilled fuel -- all boosted output in December compared to the previous year.

U.S. LNG Cargoes Depart on New Year’s Eve Heading for Europe

Unseasonably mild temperatures are forecast in the South and central portions of the continent this week, Maxar said in an emailed report on Monday. Below normal temperatures are seen across the North in the beginning of next week, trending warmer later on. 

Dutch gas for next month increased 18.5% to 83.3 euros per megawatt-hour at 5:30pm in Amsterdam. U.K. gas trading was suspended as ICE Futures Europe remained closed for a public holiday. 

Prices remain far higher than normal after more than tripling last year. That’s fueled inflation, forced industries to curb output and triggered the collapse of power suppliers.

Meanwhile, increasing gas prices have pushed up power rates again, with the German contract for next year climbing 3.8% to 124.7 euros on the EEX exchange. Carbon-emission permits increased as much as 4.5% to 85.3 euros a ton.

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