Natural gas prices in Europe have continued to rise as the worst supply crisis in decades increases the pressure on governments of European countries to introduce new supports to save businesses and families. Germany has approved new measures to limit consumption and Italy is ready to launch an energy saving plan.
At the TTF in Amsterdam, the reference hub for gas prices in Europe, contracts today jump to 315 euros per megawatt hour, an increase of around 7% after closing with a new record yesterday. Prices are approaching the level last seen in the first weeks of the Russian invasion of Ukraine, when prices hit unprecedented intraday highs.
Possible emergency meeting between EU ministers
EU energy ministers could hold an emergency meeting to discuss the price spike as leaders take on a more urgent tone. The Czech Republic, which holds the rotating presidency of the European bloc, is considering calling one meeting to discuss the idea of limiting electricity prices. CTK News reported earlier this week citing Industry Minister Jozef Sikela.
The cost of energy has soared in Europe, causing inflation to soar to the highs of recent years and undermining the stability of the euro as Russia squeezed supplies to the continent after the war against Ukraine six months ago. With Europe already seeming to be heading towards recession, the failure to contain expensive energy it threatens to spark social unrest and political upheaval if the supply crisis causes blackouts and interruptions to heating in homes this winter.
The continent relies heavily on imports of liquefied natural gas to bridge the gap left by Russia, but the competition for gas with Asia has intensified after a relative hiatus in early summer. Asian prices are also on the rise as utility companies are rushing to secure gas before winter.
The stop of Gazprom and other problems in Norway and the USA
The energy market will be under even more pressure when Russia’s Gazprom on 31 August it will interrupt flows on the main Nord Stream 1 gas pipeline for three days and European authorities fear that supplies may not resume after this interruption. Furthermore, gas plants in Norway are undergoing the usual seasonal maintenance that will continue next month, while a important LNG terminal in the United Statesdamaged by an explosion earlier this year, it delayed its reboot to November.
Meanwhile, casualties from rising energy costs are piling up: from zinc and aluminum production to fertilizers, which are being hit hard with new announcements of production cuts coming every day. For example, the European fertilizer giant Yara International he said record gas prices are forcing the company to cut European ammonia production to around 35%.
Morgan Stanley expects sufficient supplies for this winter
The available gas supply will drop by another 11% in the next thermal year. To say it is Morgan Stanley, according to which “if Russian supplies remained constant at current levels, they would decrease by about 64% on an annual basis in the thermal year 2022 (which runs from October 2022 to October 2023), increasing to 82% in the event of a complete shutdown of Nord Stream 1 ”. According to the US investment bank, it is increasingly difficult to “compensate for this problem with supplies from other sources. LNG imports are already running out of regasification bottlenecks, other pipeline supplies, such as from Norway, the UK or North Africa, are largely exhausted and indigenous production is slowly declining. This raises the question of whether demand can decline quickly enough ”.
But is demand also decreasing rapidly? Morgan Stanley replies with a “yes”. In early August, EU countries agreed on a 15% demand reduction this winter compared to 2017-21. Furthermore, the research reads, “actual demand data deteriorated faster than expected and current prices will probably weigh heavily on demand ”. However, there is substantial uncertainty: according to Morgan Stanley, “the precise trend in the seasonality of household demand this winter will only be clear at the end of October and the demand for gas for electricity generation remains at the mercy of renewables” .
Overall, Morgan Stanley expects sufficient supplies for this winter. However, this requires consistently high prices: “If our assumptions about demand materialize, it is likely that stocks will be sufficient this winter,” says the investment bank, adding: “This will probably be true even if Nord Stream flows 1 will drop to zero, though a prolonged hiatus throughout 2023 would make a winter of 2023-24 very harsh“. However, “we only arrive at this result because our demand assumptions are low enough,” concludes Morgan Stanley.