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Natural Gas, Europe, Energy Crisis, Nord Stream 1 Pipeline – TALKING POINTS
- European natural gas prices slated to continue rising, increasing European recession odds
- Russian-backed Nord Stream 1 Pipeline operator Gazprom announced a 3-day shutdown
- Gas storage in Europe makes progress as longer-term solutions come to light ahead of winter
European natural gas prices at the Dutch Title Transfer Facility (TTF) surged to the highest on record this week, further darkening Europe’s precarious economic situation and increasing the likelihood of an energy crisis over the winter. Prices opened higher Tuesday but fell throughout the session, closing nearly 3% lower. Europe has made significant progress in bolstering its natural gas storage in recent months. The European Union’s storage as of August 22 is 77.74% full, according to AGSI data.
However, a vital supply line, the Nord Stream 1 Pipeline, appears to be in jeopardy once again. The Russian state-backed Gazprom, the pipeline’s operator, announced three days of maintenance later this month. That sparked fears that Russia will use the opportunity to delay or even permanently shut off the flow of gas to Europe. The pipeline was already running at a reduced 20% capacity.
Natural gas volatility will likely remain high until markets gain clarity on the situation. Meanwhile, the discovery of a major natural gas deposit off the coast of Cyprus, with preliminary estimates showing around 2.5 trillion cubic feet (tcf) of gas, has boosted Europe’s long-term energy security prospects. The discovery was announced Monday by Eni and TotalEnergies.
The Cyprus energy ministry said that a drill ship has arrived at the new target well and will assess the site with more accuracy. The Cronos-1 well is around 100 miles off the coast and inside the country’s economic zone. Despite the rosy news, it does little to relieve Europe of its energy crisis in the near term, but positive developments and an expedited plan to secure the gas supply may alleviate prices beyond the short term. But the damage is already being done, evidenced by metal smelters suspending operations over the last month amid high energy prices. The production of metals such as aluminum is a heavily energy-intensive process.
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
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