European Gas Gains as Traders Weigh Supply Curbs, Weaker Demand

(Bloomberg) -- European natural gas prices edged higher as traders weighed persistent Russian supply cuts against signs that high fuel costs are curbing industrial demand.

Benchmark futures rose for a third day, gaining as much as 5.6% after starting the session in the red. Prices are still about eight times higher than the seasonal average, causing industry to slash consumption. In the UK, industrial gas use has fallen by about 49% this year, “roughly the same order of magnitude below pre-pandemic demand,” Citigroup Inc. said.

Prices have steadied after being roiled over the past week when Russia further tightened its squeeze on gas flows to the continent, a move that prompted some nations to resort to coal for power. Italy, one of the biggest buyers of Russian gas, is temporarily increasing coal-fired generation, joining nations such as Germany, Austria and the Netherlands in reviving mothballed power stations or removing limits on the dirtier-burning fuel.

Gazprom PJSC’s shipments through the Nord Stream pipeline remain at about 40% of capacity, causing reduction in supplies to buyers in Germany, France, Italy, and some other nations. The Russian-German subsea link is the biggest gas pipeline to the European Union.

Canada, where a Nord Stream turbine is stranded for repairs, is in talks with Germany on how to respect the sanctions imposed on Russia over its invasion of Ukraine without hurting its ally. The turbines were manufactured in Canada and need to be regularly sent back there for maintenance by Germany’s Siemens Energy AG. 

Canada Working With Germany on Options to Restore Vital Gas Flow

Gas prices will probably stabilize if Russian gas supply doesn’t deteriorate further, EnergyScan said in a note Wednesday.

“Further price climbs could strike suddenly in case of any new developments surrounding Russian gas deliveries,” Energi Danmark analysts said in a note on the energy trading firm’s website.

Cold Winter Could Push Europe Toward Gas Supply Shortages

“There is definitely reason for concern,” German Economy Minister Robert Habeck said, referring mainly to the throttled gas supplies from Russia via the Nord Stream pipeline, according to an account of a energy committee hearing published by the lower house of parliament’s media service.

The reduction in gas supply from Russia is making it more challenging to reach Germany’s storage target of 90% fill by the start of the winter, he said. The shortfall from Russia is equivalent to the daily liquefied gas load of a complete LNG tanker, he said. Germany doesn’t yet have its own LNG import terminals, but is fast-tracking the set up of several facilities. 

Norwegian flows to Europe have also dipped, as a compressor failure at the giant Troll gas field will reduce production on Thursday. While operator Gassco AS estimates the capacity reduction to last one day, it says the duration of the outage is uncertain, after moving the cut by one day from Wednesday. 

Gas is also supported by a rally in the coal market, where “the uptrend is primarily attributed to the bullish gas market, while the German decision to boost the country’s coal sector in an effort to save gas adds to the upside,” Energi Danmark said. 

Dutch front-month gas futures, the European benchmark, rose 2.4% to 128.60 euros per megawatt-hour at 3:44 p.m. in Amsterdam. The UK equivalent advanced 1.1% to 208.10 pence a therm. 

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