European gas yesterday surged to a record 100 euros before retreating, as the energy crunch deepened after China set the stage for a global fight for supplies — a move that threatens to derail the economic recovery.
Benchmark futures traded in the Netherlands gained as much 2.3 percent, and then fell 3.1 percent in volatile trading. China ordered its state-owned energy companies to secure supplies for this winter at all costs, people familiar with the matter said.
That would intensify a battle for liquefied natural gas and coal cargoes just as Russian pipeline flows into Germany’s Mallnow compressor station tumbled.
Energy prices are rising from the US to Europe and Asia as the economy recovers from the COVID-19 pandemic and people return to offices. Europe is struggling to secure enough gas and coal ahead of the winter, with rising prices forcing some of industrial giants from fertilizer producers CF Industries to Yara International ASA and chemicals giant BASF SE to shut plants or curtail output.
“The volatile trading already shows that no one really knows how high gas can go,” said Niek van Kouteren, a senior trader at PZEM, a Dutch energy company. “But we’re definitely in for a wild ride. The question will be where there will be demand destruction.”
Dutch gas futures surged to 100 euros per megawatt-hour, before plunging 3.1 percent to 94.7 euros by 9:21am in Amsterdam. Prices were swinging between gains and loss this morning as traders weighed the potential for demand curbs as more factories shut or reduce production.
European storage sites are just under 75 percent full, the lowest level for this time of year in more than a decade. Inventory withdrawals typically start by the end of the month, depending on the weather. So far, temperatures in northwest Europe are forecast to be largely within seasonal norms in October.
“Gas can go now as high as it needs to knock demand out,” said Andreas Gandolfo, leader of the European power team at BloombergNEF. “For some European industries gas has become too expensive. For some, including us, who have gas heating at home, it can probably go a lot higher before there is a decision to switch off.”
Flows from top supplier Russia into Germany’s Mallnow through the key Yamal-Europe pipeline also dropped just as the heating season begins. At an auction on Thursday, no extra pipeline capacity was booked to deliver fuel to Mallnow the following day.
The threat of more industrial closures in Europe also risks stalling than rally in European carbon futures. Some of the companies curtailing production or closing factories are energy-intensive users and need to use carbon permits to cover their emissions.
The slowdown could lead them to sell their allowances, said Trevor Sikorski, head of natural gas and energy transition at the London-based consultants Energy Aspects.
Carbon futures fell 0.6 percent to 61.40 euros per tonne, while German power gained 1.3 percent to 131 euros per megawatt-hour.
In Asia, the price of liquefied natural gas surged to a record US$34.47 per million British thermal units on Thursday. The cost in Asia and in Europe are about US$190 per barrel of crude oil equivalent.
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