European natural gas is heading for its biggest streak of weekly gains this year, intensifying pain for industries and households and threatening to push economies into recession.
Benchmark contracts fell on Friday after closing at a record high in the previous session. As Bloomberg reports, the market has tightened even more in recent weeks as extremely hot and dry weather disrupts the transportation of fuel by river and limits hydroelectric and nuclear power generation. This boosts demand for natural gas at a time when Russian supply cuts have already hit the region.
The Dutch September delivery contract, the European benchmark, is currently down 0.8% at €239 per megawatt hour. Still, it’s on its way to its fifth consecutive weekly bullish streak.
It has been an unusual and difficult summer for Europe. Prices and demand typically fall during the warmer months, helping the continent pump natural gas into storage and prepare for winter. But reduced supply from Moscow through all major pipeline routes and heatwaves have kept natural gas prices about 11 times higher than they usually are this time of year.
“Abnormally high and prolonged droughts are likely to be short-term multipliers in Europe’s energy crisis, with stressed energy sources increasing demand for natural gas and fueling upward price pressures,” Bloomberg analysts wrote in a report. Intelligence.
High prices have already forced about half of Europe’s zinc and aluminum smelting capacity to close in the past year, and more are set to shut down. Germany, among the worst-hit countries, is at risk of an industry exodus as auto parts, chemical and steel makers 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 Plc to cut production at Germany’s Rhineland oil refinery, the country’s largest oil processing complex. Navigation through Europe’s most important commercial waterway has been hampered in recent days, but some respite may come over the weekend as water levels at a key crossing point are expected to rise.
A prolonged and severe drought in Spain and Portugal is pushing baseload hydropower generation to historic lows, prompting increased calls for natural gas power, according to Bloomberg Intelligence.
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