European gas price jumps almost 40% over supply disruption fears

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European natural gas prices surged almost 40 per cent on Wednesday as the potential for disrupted global liquefied natural gas supply from Australia spooked traders betting on further declines.

Prices on the Title Transfer Facility (TTF), the European benchmark, rose to more than €43 per megawatt hour, up from almost €30 on Tuesday, reaching its highest point since mid-June.

The increase was triggered by reports that workers at important LNG plants in Australia were planning strike action in a fight for higher pay and better job security, with market movements exacerbated by some traders closing out bets that gas prices would fall.

The move highlights that despite gas storage levels rising close to capacity in the EU, the energy crisis that has roiled the continent for almost two years is not yet over, and markets are still nervous about the vulnerability of supplies.

While Australian LNG supplies rarely flow directly to Europe, the EU has become increasingly reliant on global seaborne cargoes of LNG to replace Russian supplies cut since the war in Ukraine.

Analysts said the markets remained wary of any potential supply disruptions, even though prices are substantially lower than the peaks of last summer when the slashing of Russian pipeline supplies propelled gas to record highs above €340/MWh.

Line chart of benchmark TTF contract (€/MWh) showing European gas price surges

“Even if gas storages are full, that doesn’t necessarily mean everything is fine,” said Callum Macpherson, head of commodities at Investec. “It comes down to the winter we have, which is unknown at the moment,” he said, adding that there were still “significant tail risks” to Europe’s gas situation.

The EU was the world’s largest LNG importer last year as it was forced to replace the lost Russian pipeline gas. Russia once met about 40 per cent of the EU’s gas demand.

Australia is a vital supplier to Asia, which could put it into competition with Europe for available cargoes should the market tighten.

“A cut in Australian supply could mean Asian buyers step up buying from other sellers such as the US and Qatar who can . . . pivot between the markets,” consultancy ICIS said in a note.

Similar price surges have occurred on a few occasions this year, but they have tended to pare back the gains later in the day. Oil prices also rose on Wednesday with Brent crude, the international benchmark, extending recent gains triggered by production cuts by Saudi Arabia and Russia to hit $87.65, its highest level since January.

Rising energy costs could make it more challenging for central banks to bring inflation under control.

The EU’s gas storage facilities, which are key to meeting demand in winter, are now close to 90 per cent full, a level that the European Commission was aiming to reach by the start of November. Some traders expect the facilities to reach full capacity by September.

However, analysts at Citigroup said that if the Australian strikes went ahead and lasted through the winter, then “European natural gas might avoid having its inventory breaching storage capacity limits”.

The Wall Street bank added that European prices could double by January, hitting €62/MWh should the strikes in Australia “begin soon and last until the start of winter or beyond”.

Additional reporting by David Sheppard in London