European Gas Set for Another Weekly Gain

European Gas Set for Another Weekly Gain
Natural gas in Europe headed for the longest run of weekly gains this year.

Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, and threatening to push economies into recession. 

Benchmark futures eased on Friday after closing at a record high in the previous session. The market has tightened even more in recent weeks as extremely hot and dry weather disrupts fuel transportation via rivers and limits hydroelectric and nuclear power production. That’s boosting demand for gas at a time when Russian supply cuts are already slamming the region.    

It’s been an unusual and difficult summer for Europe. Prices and demand typically ease during the warmer months, helping the continent pump gas into storage and prepare for the winter. But Moscow’s supply reduction through all major pipeline routes and searing heat waves have kept gas prices about 11 times higher than they usually are this time of the year. 

“Abnormally high and extended dry spells are likely to be near-term multipliers in Europe’s energy crisis, with suppressed power sources increasing demand for gas and stoking upward price pressure,” Bloomberg Intelligence analysts wrote in a report.

Dutch front-month contract, the European benchmark, were 2.1% lower at 236 euros a megawatt-hour at 9:05 a.m. in Amsterdam. Still, it is heading for a fifth straight weekly gain, the longest run since mid-December.

The high prices have already forced about half of Europe’s zinc and aluminum smelting capacity to shut down over the past year, and more is set to go offline. Germany, among the worst affected, is risking an industry exodus as manufacturers of car parts, chemicals and steel struggle to absorb energy prices. The government has urged consumers to lower demand, and on Thursday cut sales tax on gas to temporarily ease the burden.

Low water levels in the Rhine River has lead Shell Plc to cut production at its Rhineland oil refinery in Germany, the nation’s biggest oil-processing complex. Navigability through Europe’s most important commercial waterway has been hampered in recent days, but some respite may be seen during the weekend as water levels at a major waypoint are expected to rise.

A prolonged and severe drought in Spain and Portugal is pushing baseload hydroelectric output to historical lows, prompting increased calls for gas-fired power, according to Bloomberg Intelligence. 


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.