Current issues with gas supplies
Over Europe gas prices have been on a steady incline, this has been due to many reasons that have accumulated together to cause demand to slowly start to creep over supply.
One reason for this crisis with gas has been a lack in supplies due to Russia reducing gas supplies through the Nord Stream 1 pipeline, which connects to Germany. This month Gazprom, a Russian supplier announced that due to work that needed to be done on the pipeline they were going to have to reduce supplies by 40%. According to the energy giant work needs to be done right through the winter which would mean further cuts to Europe’s gas levels.
However, Germany have said that this is not necessary and have stated that this is a political decision that is aimed to upset the market across the continent and drive prices up. Germany economic minister has stated that although work does need to be done, repairs cannot even begin till autumn this year and would not warrant a 40% reduction in gas.
This has already started to upset markets in Europe and leads to worries that Russia is going to continue to weaponize gas supplies over the year to exert political power. Europe gets around 40% of their gas from Russia mainly from the Nord Stream 1 pipeline this means that they are going to have to look at other suppliers to replace it. This will lead to intense competition for gas supplies over the rest of the year which means sky high prices are likely to affect the UK as well.
Another factor that has been causing issues with gas prices has been and LNG outage due to a major incident at an LNG port in the US. This facility was one of the largest US operators of natural gas and will likely be off the market until September with only partial operations through to the end of the year.
This caused European gas prices to shoot up around 60% adding to a further loss in exports. The facility produces around 2.1bcf per day and exports around 1.17 bcf per day to Europe. Experts at the freeport have said that they expect Europe will be affected by this the most as they are already suffering with a lack of supplies and rise in demand when it comes to gas prices.
Implications of the shortage
All the gas shortages have led hubs across Europe to grow concerned that the ongoing demand for gas with a lower supply could lead to a lack of storage. Storage in these hubs must reach a certain level to meet their target by 1st of November to ensure there is not an outage in the winter months. Gas storage was already at its lowest level in 5 years before these new issues which increases concerns for suppliers.
Due to this supplier have started to ask energy consumers in some countries to cut back energy usage to curve the demand. For example, Suppliers in France have asked their energy consumers to limit energy consumption in their homes and businesses. This is in hopes that if consumers change their behaviour, then demand will settle allowing them to build up more storage for the winter.