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(Bloomberg) — European gas prices jumped as the Netherlands prepared to permanently close a major field, while outages tighten the region’s supplies and a scorching heat wave drives up demand.
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Benchmark futures spiked as much as 30%, to their highest level since early April, before paring most of those gains. Prices have surged more than 50% in June as the contract sees its most volatility in months.
Europe is facing a reminder that its energy security is still vulnerable, even after amassing unusually high gas stockpiles in preparation for next winter. The planned shutdown of the Groningen field — which could occur as soon as October — has rattled the gas market just as the region prepares for what could be another scorching summer, driving up demand for the fuel.
The continent is revamping its gas networks after Russia curbed supplies in the fallout of the war in Ukraine. While imports of liquefied natural gas remain seasonally elevated, Europe faces increased competition for the fuel with Asia.
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Groningen hasn’t been a major contributor to Europe’s supplies, though plans for a permanent shutdown add to market nervousness. Meanwhile, works at some major Norwegian facilities are set to continue into July.
“Closing the field is, again, not good news for energy prices and security of supply,” Jilles van den Beukel, an energy specialist at The Hague Centre for Strategic Studies, said on Twitter.
Read More: Netherlands Set to Close Europe’s Biggest Gas Field in 2023
The Dutch cabinet will make an official decision later this month, according to people familiar with the matter. The government previously said it aims to shut the field at the latest by Oct. 2024 depending on the “geopolitical situation.”
A decision to close the field isn’t entirely irrevocable, the people said, adding that it would take about two weeks to reopen wells in the event of a crisis or very cold winter.
Concerns about LNG supplies to Europe and Norwegian outages “have been the physical triggers” for rising prices said James Waddell, head of European gas and global LNG at consultant Energy Aspects Ltd. “But we have to remember that a lot of the market was short going into this month and price rises will have triggered stop-outs, thereby driving the price even higher.”
Dutch front-month gas, the benchmark for Europe, rose 3.8% to €39.77 a megawatt-hour by 2:52 p.m. in Amsterdam. The UK equivalent contract added 3.7%.
—With assistance from Priscila Azevedo Rocha and Elena Mazneva.
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