European natural gas closed at a new record for a second day, putting further pressure on industries and households and raising fears of a recession, according to Bloomberg.
Prices got a boost after Russia’s GAZPROM announced it would suspends natural gas supplies through Nord Stream 1 due to maintenance work from August 31 to September 2. After the completion of the maintenance work, the flows of 33 million cubic meters per day will be restored, the company added in its announcement, that is to 20% of its capacity.
The market has been particularly tight in recent weeks as extremely hot and dry weather disrupts the transportation of fuel by river and limits hydroelectric and nuclear power generation. Demand for natural gas is rising as a result, while Russian supply cuts are already affecting the region.
It has been an unusual and difficult summer for Europe. Prices and demand typically fall during the warmer months, allowing the continent to fill up gas storage and prepare for winter. But reduced Russian supply through all major pipelines and scorching heat waves have kept natural gas prices about 11 times higher than they usually are this time of year.
Against this backdrop, the Dutch contract – the European benchmark – closed at a record 244.55 euros per megawatt hour, recording a fifth consecutive week of gains, the longest streak since mid-December. The corresponding British contract closed at its highest level since early March.
High prices have already forced about half of European zinc and aluminum smelting capacity to close over the past year, and further capacity cuts are expected. Germany, among the worst-hit countries, risks severe industry disruption as auto parts makers, among others, struggle to absorb higher energy prices. The government has urged consumers to reduce demand and on Thursday cut the sales tax on natural gas to temporarily ease the burden.
Low water levels in the Rhine River prompted Shell to cut production at its Rhineland oil refinery in Germany. Navigation through Europe’s most important commercial waterway has been hampered in recent days, but water levels at a key German point are forecast to rise early next week, offering some respite for barges carrying vital cargo.
Prolonged drought in Spain and Portugal is pushing hydropower production to historic lows, prompting increased calls for natural gas power, according to Bloomberg Intelligence.
Source: Capital
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