Natural Gas Soars in Europe, Asia as Crisis Heats Up Competition

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(Bloomberg) — European and Asian natural gas prices surged to near record highs as the worst energy crisis in decades intensified competition to secure supplies.

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The Dutch front-month contract, the European benchmark, jumped as much as 13% on Wednesday to levels last seen in the weeks following Russia’s invasion of Ukraine. Asian liquefied natural gas futures rallied 18% to an all-time high. 

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Prices in Europe are more than 10 times their average for this time of year, destabilizing economies, undermining the euro and heaping pressure on politicians to blunt the impact of the worst inflation in decades. Supply disruptions have worsened this week, intensifying competition with Asia for spare shipments of LNG as utilities scramble to secure fuel ahead of winter.

Gas shipments from Russia remain curbed, and lower flows from Norway are expected into September due to maintenance. In the US, a key liquefied natural gas plant damaged by an explosion earlier year will delay its restart to November, versus a previous target of October, which led to prices there coming off the highest level since 2008. 

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The European Union has relied heavily on shipments from the US and Norway to fill the gap left by Russia, after Moscow cut flows in retalation against sanctions imposed due to its war in Ukraine. The crunch has also curtailed industrial production and fanned the risk of recession in the region. 

The list of casualties is growing, with everything from aluminum to fertilizers hit hard by surging energy costs. In the latest twist, major producer CF Industries Holdings Inc. said Wednesday that its UK unit intends to temporarily halt ammonia production as it’s “uneconomical” at current gas and carbon prices.

Read also: European Governments Spend $278 Billion to Cushion Energy Crisis

The market will get even tighter when Russia’s Gazprom PJSC halts flows on the key Nord Stream gas pipeline for three days of maintenance starting Aug. 31. European authorities are concerned the flows may not resume after the work.

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“Europe simply doesn’t have access to enough alternative supplies to easily compensate for those Russian gas losses,” Samantha Dart, Goldman Sachs Group Inc.’s head of natural gas research, said on Bloomberg TV. “LNG has helped European storage to remain on track.”

Dutch gas settled at about $83 a million British thermal units on Wednesday. Futures for the North Asian LNG benchmark, the Japan-Korea Marker, jumped to about $66 a million Btu on the New York Mercantile Exchange. U.S. Henry Hub gas declined 0.7% in Asian trading on Thursday to $9.26. 

Supply Woes

Meanwhile, Russia’s Sakhalin Energy LLC scrapped an LNG shipment to at least one Asian customer over payment issues, according to traders familiar with the matter. It’s the first sign that Moscow’s push to consolidate control over gas is beginning to curb supply in Asia. 

The extension of maintenance at the Freeport LNG terminal in Texas is expected to remove at least a dozen cargoes from the market, traders estimate. Buyers in Japan and South Korea were counting on Freeport shipments to refill inventories before winter and now will need to look for more supply from the spot market.

Pipeline supplies into Europe from Norway have fallen about 5% since last week as planned and unplanned outages pile up. More works are scheduled for next month as well, including the major Troll field and the Kollsnes gas plant, according to network operator Gassco.