European Gas Whipsaws as Infrastructure Risks Rattle Nerves

(Bloomberg) -- European natural gas swung as anxiety mounted over the safety of infrastructure that’s key to ensuring supply to the continent.

Benchmark futures pared gains after Norway’s grid operator said there was no disruption to gas transport following a possible bomb threat at the Ormen Lange field and Nyhamna processing facility earlier on Thursday. Output is normal and workers are returning to the site, Shell Plc said.

Prices had earlier jumped as much as 9.2% on fears over the projects, highlighting the scale of the market’s nervousness. It follows similar swings earlier this week as scrutiny around energy infrastructure increases after the recent blasts at the halted Nord Stream pipeline system put it out of commission indefinitely. A section of a crucial pipeline carrying Russian oil to Germany developed a leak in Poland recently, but authorities later said it was probably an accident. 

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Traders are on edge with Russian President Vladimir Putin saying any energy infrastructure in the world is at risk after the Nord Stream explosions, which he said benefited the US, Ukraine and Poland. The US and its allies have rejected those allegations and suggest Moscow may have been behind the underwater blasts.

These heighten concerns over supply just as Russia’s escalating war in Ukraine is putting at risk the last pipeline route for Kremlin’s gas shipments to western Europe. For now, those flows are stable, albeit at the reduced levels of the past few months. But Moscow’s warnings about sanctioning Ukraine’s gas operator and the barrage of missile attacks this week mean making European policy makers nervous. 

Dutch front-month gas, Europe’s benchmark, traded 0.4% higher at 160.87 euros per megawatt-hour by 11:25 a.m. in Amsterdam. The UK equivalent contract declined 0.3%, also moving between gains and losses.

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The Norwegian facilities are key to supplying gas to Europe. The continent is already facing a winter with the bare minimum gas from Russia, and any further disruption could mean wide-spread shortages and skyrocketing prices. Inventories are fuller than usual and imports of liquefied natural gas is ensuring availability, but a spell of cold weather or a prolonged outage could make the situation precarious.

“Current supply plus inventories should be sufficient to meet demand this winter” even if Russian gas transit via Ukraine stops, analysts at Morgan Stanley said in a note, adding the likelihood of a halt has increased. Still, Europe pulling more LNG will tighten global supply next year, meaning higher risks for the continent next year, it said. 

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