Europe's gas prices climb as Russia slashes exports to Germany

Nord Stream 1 pipeline reduced to 20 per cent of capacity by state-owned exporter Gazprom

Russian supply cuts have raised doubts over whether gas tanks can be filled up for winter. AP
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Europe's natural gas prices were approaching their highest since the war in Ukraine began on Wednesday after Russia slashed supplies to its western neighbours.

Benchmark gas contracts were trading at 216 euros ($219) per megawatt hour, up 9 per cent, after deliveries through the trans-Baltic Nord Stream pipeline were cut to 20 per cent of capacity.

The continued rise came despite members of the European Union agreeing on Tuesday to cut their gas consumption by 15 per cent this winter, although a number of opt-outs were negotiated into the package.

Prices were up by almost a fifth in a week and not far off their wartime high in March, as “persistent concerns about tightening European supplies continued to hang over the market,” Trading Economics said in a market summary.

“Russia's natural gas weaponisation also sparked a rush for supplies from other main buyers, including Japan and South Korea, which are moving through with plans to buy more LNG cargoes for the winter,” it said.

Gazprom, the state-owned Russian exporter, announced this week that deliveries via Nord Stream would be cut from Wednesday because of what it described as technical problems.

But European officials regard this explanation as spurious and accuse the Kremlin of trying to increase prices and undermine European unity by withholding gas.

European energy ministers negotiated a deal riddled with compromises to reduce gas demand by 15 per cent. AP

Germany, the country at the western end of Nord Stream, which has long relied on Russian energy and which re-exports some of it to neighbours such as the Czech Republic and Austria, said supplies were already down on Wednesday.

Klaus Mueller, the head of the country's power grid regulator, estimated that gas tanks would continue to fill up by about 0.2 percentage point a day while demand is low in the summer.

But he told German radio that things would get tougher in the autumn and winter, even as energy saving measures by households and the government show their first signs of bearing fruit.

The EU has set a target for its member states of filling up their gas tanks by 80 per cent by November, while Germany has set a much higher target of 95 per cent. Both are currently in the mid-60s.

“Gas is now a part of Russian foreign policy and even Russia's war strategy,” Mr Mueller said. “Every effort to save energy, from the government, from industry, from the states, from many organisations in civil society, is necessary.”

Ministers are concerned that Russia will completely switch off supplies, raising the prospect of energy having to be rationed if demand is not reduced by enough.

The EU strategy agreed on Tuesday could become binding if a continentwide alert is declared, although member states have prised the power to do that away from the European Commission.

There were also negotiated opt-outs for some countries, including islands such as Ireland and Malta, which have few connections to the European power grid and therefore less reason to save gas.

Updated: July 27, 2022, 11:02 PM