European Gas Prices Soar, Fire in Freeport LNG facility, Russia Supply Concern

After a fire at an American export terminal threatened to endanger supplies to Europe, natural gas prices in Europe rose.

  • Texas’ Freeport LNG facility will be closed for at least three weeks
  • The closure comes amid capped supplies from Norway, and Russia leaves Europe vulnerable to fuel supply shortages.

The six-day streak of falling benchmark futures in Amsterdam was broken by the UK, which saw prices jump as high as 39%. For at least three weeks, the Freeport liquefied gas facility in Texas will be closed. It accounts for about a fifth of all US fuel exports. In the first four months of this year, nearly 75% of US LNG was sent to Europe.

As a result, pipeline supplies from Europe’s top providers have been capped. This week, Norway’s key facilities are under annual maintenance. Russia’s supplies are at a standstill after several European buyers refused to pay Moscow in rubles for the pipeline fuel.

Ole Hansen, head of a commodity strategy at Saxo Bank  said that the event “highlights Europe’s precarious position and it would likely signal an ending for now to calm trading seen in the recent weeks.” “An export stoppage during high-demand winter months would have triggered an even bigger reaction.”

Europe is reliant on US LNG in order to offset the risk of Russian pipeline disruptions. The market has calmed down after the wild swings of earlier this year.

According to Tom Marzec Manser, head, of gas analytics at ICIS (citing his firm’s data), “In the past three months, 68% of all Freeport cargoes have been delivered into European markets.” “European traders will be watching closely and waiting to see whether this outage lasts longer than originally predicted by the operator.”

Although the extent of damage to Freeport is still unknown, the fire could cause about 16% of US LNG export capacity to be lost “for an unknown time if the fire damage proves to be difficult to repair,” Evercore ISI analysts stated in a note.

The European benchmark for front-month gas in the Netherlands rose by as much as 16%, before trading 8.2% higher at an average of 86 euros per megawatt hour, at 10:30 AM in Amsterdam. Over the six previous sessions, the contract dropped 16%.

Next-month UK futures rose to as high at 180 pence per therm, before falling to 168 pence. The send-outs from Britain’s LNG terminals, which are a key European destination of US cargoes, dropped by 30% on Thursday, the lowest level since mid-March.

Due to tighter gas supplies, electricity prices on the continent rose. German prices rose as high as 11% to 194.50 Euros per Megwatt-hour next month, before falling to 186.60 Euros.

Even though Europe is experiencing mild temperatures and a slowing economy, energy companies might need to tap into their gas reserves to meet demand. Storage levels are closer to historical averages.

According to traders in Asia, LNG buyers may begin looking for replacement shipments on the spot market. However, there are a decreasing number of available supplies. This move will likely increase already fierce competition between Asia-Europe for fuel.

After a one-day stop at the Troll field to conduct annual tests, gas flows from Norway have rebounded. However, they are still below normal because seasonal work continues at many facilities. Grid data shows that Russian gas exports via the Nord Stream pipeline will continue to decline on Thursday.

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