European Gas Jumps Over 15% as Key Norway Sites Extend Outages

(Bloomberg) -- European natural gas futures rose sharply on Tuesday after outages were extended at three major Norwegian gas plants and fields.

Month-ahead Dutch benchmark futures rose as much as 16.6%, reversing earlier declines, with the facilities now set to remain offline until the middle of July. The outages will affect major facilities including Ormen Lange, Nyhamna and Aasta Hansteen, according to notices posted by network operator Gassco AS.

The moves signal that the market still remains sensitive to supply shocks, with traders balancing out sluggish industrial demand and high inventory levels as the region prepares for the forthcoming winter. Prices have been volatile in the past week amid an array of competing factors, including plant outages and the onset of unusually hot weather in Europe and Asia, which could raise cooling needs and competition for fuel imports. 

While fuller-than-average storage levels have at times provided a sense of security as Europe prepares for the next heating season, traders appear to be bracing for the possibility of a tighter market, with prices higher than they were at the start of this month.

“It highlights a market where traders have been ill-prepared for a tightening outlook, no matter how short- or long-lived the Norwegian outages turns out to be,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S.

A Norwegian unit of Shell Plc said in a website statement that it had stopped all non-essential work at Nyhamna after discovering gas in a cooling system. That gas is not related to fuel “usually processed” at the facility, but the restart is delayed for an audit. Nyhamna processes gas from the Ormen Lange and Aasta Hansteen fields.

Analysts at Bernstein expect Europe to enter the next winter with gas storages filled to the brim, but fall to 48% by the end of the season, somewhat below levels seen earlier this year. Citigroup Inc. analysts — among the most bearish — have said they expect third-quarter prices in Europe and Asia to average about 50% below their current levels. 

Dutch month-ahead gas futures, Europe’s benchmark, traded 12.4% higher at €34.90 a megawatt-hour by 4:10 p.m. in Amsterdam. The UK equivalent contract was up 16%. German power for next month rose 6.6% to €106 per megawatt-hour.

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