European gas extends blistering rally as supply woes deepen

Natural gas in Europe rose to the highest level in almost four months as planned strikes in Norway threaten to further tighten a market that’s already reeling from Russia’s supply cuts.
Benchmark futures, which have more than doubled this year, surged as much as 10% yesterday. About 13% of Norway’s daily gas exports are at risk amid plans to escalate an impending strike by managers, the nation’s oil and gas lobby warned over the weekend. Three fields are set to be shut by the strike starting today, while planned action the following day would take out another three projects.
Norwegian supply is becoming increasingly important for the continent after shipments from biggest provider Russia slumped amid the invasion of Ukraine and subsequent sanctions on Moscow. That coincided with a prolonged outage at a key export facility in the US, another major source of gas for Europe. The impact is spreading through the continent’s economy, hurting industries that cannot pass on increased costs of the fuel to end-users.
“Supply concerns are extremely high and the market continues to add risk premium,” analysts at trading firm Energi Danmark said in a note. “The situation will remain tense this week and we expect further increases if flows remain low.”
Dutch front-month gas futures, the European benchmark, hit the highest intraday level since March 9 and were 8.3% higher at €160 per megawatt-hour in Amsterdam. The UK equivalent surged as much as 16%.
Russia’s exports dropped to multiyear lows earlier after a number of European buyers refused to comply with the Kremlin’s demand to be paid in roubles for pipeline gas supplies. On top of that, state-run exporter Gazprom PJSC slashed shipments through its biggest Nord Stream pipeline by 60% last month, citing international sanctions that disrupted maintenance of crucial equipment.
The pipeline is scheduled for a full shutdown next week for annual works, and Germany has raised doubts that it will resume supply following the maintenance.
In a separate development, a Gazprom official said yesterday that the company is proposing expanding the rouble-payment demand to liquefied natural gas supplies from Russia. It’s unclear if the Kremlin is considering such as plan, but it could be another blow to Europe’s supplies – and could further intensify competition for the fuel between the region and Asia.
Major industries in Europe’s powerhouse, Germany, could face collapse because of gas-supply cuts, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz starting Monday. The energy crunch is already driving inflation to record highs, and could lead to social and labour unrest, Yasmin Fahimi, the head of the German Federation of Trade Unions, said in an interview with the newspaper Bild am Sonntag.
With prices at these levels, “there is no doubt we have entered demand destruction territory, which eventually may help stabilise the market,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “In the short term, and with battered and bruised traders increasingly turning off their screens to go on holiday, we may see lower activity with the news flows dictating the level of volatility.”
Germany’s industrial sector, with a 35-40% share of gas demand, appears particularly vulnerable to the potential risk of Russia halting flows as stockpiles for winter household and district heating are set to be prioritised, analysts at Bloomberg Intelligence said in a note.
While power stations have some flexibility to switch to other fuels, a full cut in Russian supply to Germany in August would see a demand destruction of 20-25bn cubic meters, or 27% compared to 2021, they said.