European natural gas futures edged higher as the energy supply crisis continued to hit the region amid signs that the fuel is becoming too expensive for industrial use and power generation, Bloomberg writes.
Europe is engulfed in an energy crisis caused by limited supplies from Russia, as well as increased demand amid recovery from the pandemic and hot and dry summers, which have increased the need for cooling. Countries are outlining plans to conserve gas ahead of winter by putting as much gas in storage as possible but still bracing for the risk of energy rationing.
While “a nationwide gas shortage may not necessarily occur,” Germany expects “regional gas shortages could definitely occur,” Klaus Müller, president of the federal network agency BNetzA, told news site t-online.
“The restrictions are likely to be temporary at first and may end again or repeat several times. <…> In this case, we must ensure the safe transportation of gas throughout the country,” said the head of the regulatory body.
Europe is likely to use its stocks aggressively if limited flows from Russia continue through the winter, which would mean stock draws at the end of the heating season and a new replenishment cycle in the summer.
“It is all the more important that everyone understands that we are not talking about one winter, but at least two. <…> And the next winter may be even harder,” Muller said.
Futures for the coming month in the Dutch centre, the European benchmark, traded up 1.9% to 230.05 euros per MWh by 12:56 am in Amsterdam. The contract is calculated slightly below the record for the last two sessions. Gas prices in the UK rose by 2.3%. As the winter supply crisis approaches, Europe will have to compete with Asia for affordable LNG supplies, especially from the US. Tracking European prices, Asian LNG spot prices were just below $60 per million Btu on Wednesday, the highest level since early March.
“Increased demand from Asia as buyers gear up for winter could increase the amount of US cargo heading to the region in the coming months,” Lujia Cao, an analyst at BloombergNEF, wrote in a note.
Elsewhere, a temporary rise in water levels on the River Rhine is expected in the coming days due to rain, which could provide some respite in the crisis that has restricted barge traffic on the water. However, the river is still historically low. The situation on the Rhine exacerbated the energy crisis in Europe.
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