Topline
Natural gas prices in Europe and Asia have skyrocketed after Russia’s state-controlled Gazprom announced plans to temporarily close a key pipeline at the end of August for maintenance, deepening Moscow’s energy standoff with Europe as fears of a looming crisis intensify.
The Nord Stream 1 pipeline is set to shut at the end of August for routine maintenance.
Key Facts
European benchmark Dutch front-month futures, which rose for the fifth consecutive week and closed at a record-high on Friday, jumped 18.6% to 291.40 euros a megawatt-hour on Monday morning.
There were also double digit jumps for British and German benchmarks—respectively 16% and 13%—with the German year-ahead power reaching a record 630 euros per megawatt-hour, Bloomberg reported.
Prices in Asia spiked on Friday after Gazprom announced the shutdown, according to Bloomberg, with producers reportedly offering liquid natural gas spot cargoes for winter nearly 10% above the Asian benchmark before the firm’s announcement.
The Japan-Korea Marker, the Asian benchmark, already hit its highest level since early March—shortly after Russia invaded Ukraine—last Tuesday as firms around the world rush to secure supplies for winter.
News Peg
Gazprom on Friday announced plans to shut the Nord Stream 1 pipeline for three days, purportedly for “routine maintenance.” The pipeline, a major supplier of European gas, already underwent a 10-day shutdown for maintenance in July and has been operating at drastically reduced capacity since. European leaders have accused the Kremlin of using its energy to punish and blackmail the bloc over sanctions for invading Ukraine and the shutdowns have compounded the already volatile energy market, sparked fears of shortages come winter and fueled inflation. Moscow denies it is playing politics and blames global sanctions for its inability to have a necessary turbine for the pipeline returned from Canada, where it is being serviced. European and Canadian leaders both dispute this account, as does Siemens, which made the turbine.
Key Background
Europe officials widely fear that Russian President Vladimir Putin would cut off supplies in retaliation for Western sanctions and support of Ukraine. The bloc relies heavily on Russian energy exports, particularly gas, something that has hindered its ability to effectively sanction Moscow and to present a unified front against the war. Scant supplies from Russia, magnified by extreme weather across Europe, have pushed energy prices to their highest levels in decades, worsened spiraling inflation and prompted countries to delay energy infrastructure changes to offset the losses. It has also sparked stockpiling efforts as nations prepare for the possibility of a tough winter without Russian gas (Germany is even stockpiling wood over fears of a gas shortage). The situation in Europe has also triggered spiraling fuel costs in Asia, as key natural gas importers like Japan and South Korea scramble to secure supplies earlier than usual over fears they will be squeezed out by increasing European demand later in the year.
Further Reading
Why UK energy prices are rising much faster than in Europe (CNN)
Nord Stream 1: The 12-metre turbine threatening Europe’s gas supply (BBC)
Russia Restarts Key Gas Pipeline To Europe After Fears Moscow Would Keep Taps Closed (Forbes)
Source: https://www.forbes.com/sites/roberthart/2022/08/22/natural-gas-prices-soar-in-europe-and-asia-as-moscow-plots-closure-of-key-pipeline/