The global energy crisis deepened on Tuesday as a further rise in natural gas prices in Europe and the US threatened to plunge some of the world’s largest economies into recession.
The gas market in Europe rose 10 percent to €251 per MWh, which in energy terms equates to more than $400 a barrel of oil, as traders raced to secure supplies ahead of winter. Prices have more than doubled from their already extreme highs in June, although they edged back slightly later on Tuesday.
The move follows Russia, which restricted supplies in retaliation for Western powers supporting Ukraine after the Moscow invasion, allowing traders to trade liquefied natural gas cargo with Asian utilities ahead of the winter heating season. fear of competition. European politicians have accused Moscow of supplying arms.
With gas prices rising more than 10 times their normal level, the prospect of a deep recession has increased and investors are now slamming the German economy more than at any time since the eurozone debt crisis a decade ago. .
With European gas prices expected to remain near record levels or even higher as winter approaches, the possibility of using rationed gas for electricity bills is being debated in Berlin and governments from London to Madrid. prepare subsidies
Further price hikes will increase the cost of supporting families, including in Britain, where pressure has been put on the next prime minister to potentially cap bills even if Russia is to isolate supplies entirely.
“European gas prices are still making new highs,” said Bill Farren-Price, director of energy consultancy Enverus.
“With customers potentially facing a full shutdown in Russia before the start of winter, there is little to stop this rally until we see significant demand destruction, potentially portending a deep recession. We’re not there yet.”
The US gas market is much smaller than Europe’s thanks to the shale drilling boom of the past 15 years, but rising energy costs have helped fuel decades of high inflation and raised alarm bells in the White House.
On Tuesday, the US reference gas rose almost 7 percent to $9.30 per million British thermal units, at levels close to pre-shale revolution levels.
Analysts said further growth could be expected on both continents in the coming months as demand picks up, winter sets in and governments rush to replace Russian energy in Europe.
The benchmark contract for September UK delivery rose more than 18 percent in phase one on Tuesday, hitting £4.80 per spa, equivalent to about $5.8 million per BTU, before slipping slightly.
The benchmark gas price in mainland Europe is 75 million Btu, bringing record prices to electricity markets, where prices have risen six-fold from last year’s levels.
On Tuesday metals company Nyrstar, controlled by commodities trading house Trafigura, said it would indefinitely halt production at one of Europe’s largest zinc smelters, becoming the latest industrial victim of the energy crisis.
Peter Rosenthal of consultancy Energy Aspects said the US price hike indicates a recent slowdown in production from new shale oil and gas wells due to drilling, bottlenecks in pipeline networks and rising production costs. did.
“This is a sea change,” said Stephen Shore, editor of energy markets newsletter The Shork Report. He said cheap US natural gas has been “an era gone by now” for more than a decade.
US gas prices have risen as underground reserves have fallen 12 percent below average levels, decimated by power plants burning more fuel to meet electricity demands in hotter-than-normal summers.
Prices rose even as the Freeport LNG export facility in Texas, one of the country’s biggest gas consumers, was temporarily shut down after an explosion.
Freeport’s restart back in October will make more supply available to Europe, potentially lowering prices in the Atlantic but increasing demand in the US.
Additional reporting by Harry Dempsey in London and Martin Arnold in Frankfurt