By Geoffrey Smith
Investing.com — European natural gas futures jumped at the open on Monday after Russian gas monopoly Gazprom (MCX:) shut down the Nord Stream gas pipeline to Germany, raising fears of a complete shutdown. Russian supplies over the winter.
The first-month contract, which serves as a benchmark for northwestern Europe, jumped 31% before falling back a bit to trade at 263 euros per megawatt-hour at 03:25 ET (07:25 GMT). That’s a 22.5% gain from Friday’s close.
Gazprom’s action was the second in a major escalation in the economic struggle sparked by Russia’s invasion of Ukraine on Friday. The company had released its news immediately after the close of natural gas trading in Europe, and only hours after G-7 finance ministers agreed on a much-discussed plan to impose a price cap. on Russian oil exports, aimed at stifling the cash supply of President Vladimir Putin’s government.
Nord Stream had shipped around 30 million cubic meters of gas per day before the shutdown, around 20% of its official capacity. The loss of this supply makes it more difficult for European utilities to continue the good progress they had made in filling their storage facilities ahead of the winter heating season.
“While storage levels in the Eurozone have risen rapidly in recent weeks due to surging imports of (liquefied natural gas), the prospect of rationing and new initiatives to reduce demand for gas prices and electricity will be the focus this week,” the strategists said. to Saxo Bank in a morning note. “The destruction of demand due to soaring prices has already depressed demand, but more is needed, especially if the winter turns out to be cold.
The sense of crisis in Europe’s energy sector deepened over the weekend after Friday’s events, with Germany imposing a one-off tax on power producers to fund a €65 billion relief package euros for customers facing unaffordable increases in their bills, while Finland and Sweden also announced emergency schemes. to prevent energy companies from collapsing as the price of supplies soared.
Electricity prices have soared largely due to gas prices, given that much of the marginal capacity in Europe – where generation can be scaled up and down easily to match the natural fluctuation of demand – is gas powered. EU energy ministers are due to meet on Friday to discuss – among other things – plans that would decouple electricity prices from gas prices.
The shutdown of Nord Stream means the eurozone, “and Germany in particular,” is heading for higher inflation and a worse recession than the European Central Bank or private economists predict, said economist Holger Schmieding. chief at the Berenberg Bank in Berlin, in a note to clients.
Such pessimism was reflected across European assets at Monday’s open, with the fall to a new 20-year low of $0.9877 before recovering slightly to be down 0.4% at 0. $.9911 at 3:25 a.m. ET. The index fell 1.6% and the German index, with its heavy weighting of industries exposed to soaring energy prices, fell 3.0%.