LONDON, Sept. 14 (Reuters) – Gas prices in Europe soar on tight stocks as winter approaches, prompting power producers to revert to coal and industrial users to consider temporary shutdowns of ‘factories.

European benchmark futures for delivery in January 2022, when demand for heat is expected to peak, hit a record 66 euros ($ 78) per megawatt hour, down from 16 euros a year ago.

Prices have accelerated since early April, when stored gas began to fall below the five-year pre-pandemic average for 2015-2019, signaling an impending deficit.

Since then, storage facilities have filled slower than normal, despite soaring prices, as Europe struggles to import enough gas to reduce the deficit (https://tmsnrt.rs/398e1Wh).

European importers have been competing with Asian buyers to attract additional cargoes of liquefied natural gas (LNG), while pipeline deliveries from Russia have failed to respond.

Unusually slow wind speeds have reduced energy output from wind farms in recent weeks, forcing generators to run gas units for longer hours, despite rising fuel costs.

As a result, storage in the region is only 71% full, compared to an average of 84% before the outbreak for this time of year, according to data from Gas Infrastructure Europe.

Storage rates have not been below 77% at this point in the year for the past decade, threatening the region with a gas shortage this winter.

With gas accounting for 19-20% of primary energy consumption in Europe and the same percentage of electricity production, the deficit increases the risk of a wider energy crisis.

The rise in gas prices, which is helping to curb consumption, is mainly due to a physical shortage, although it is also likely that it will be anticipated, accelerated and amplified by financial operators.

In response, ultra-high prices will encourage power producers to minimize gas consumption and maximize other production (mainly from coal) to stretch gas stocks as much as possible.

Industrial users with high gas consumption, including steel mills, cement, ceramics, glassware, fertilizers and petrochemicals, will need to consider reducing production or temporarily shutting down to reduce fuel costs.

In some cases, industrial buyers with long-term gas contracts may be able to resell gas on the spot market more profitably than using it themselves, further increasing availability.

Since mid-August, with mid-winter futures exceeding 35 and then 40 euros, the storage deficit has improved slightly, suggesting that gas rationing by price is starting to work.

Like other commodity markets recently, including lumber, gasoline prices have likely exceeded their sustainable level.

Some of the speculative “foam” that has accumulated in recent weeks is likely to deflate as the first signs of market rebalancing become clearer.

But prices are expected to remain high for some time, until evidence emerges of a destruction of demand in the form of reduced gas production, shutdowns and resales of industrial plants, d ‘an increase in deliveries from Russia and LNG, or that the winter is turning out to be milder than usual.

Associated columns:

– Gas production in the United States is expected to experience a sharp increase in 2022 (Reuters, September 10) read more

– Global gas prices soar as industry struggles to meet resurgent demand (Reuters, September 8) read more

– Chinese coal futures record signals need to increase production (Reuters, September 7)

– US gas prices at multi-year highs will protect stocks (Reuters, July 22) read more

– Rising gas prices in the United States will further encourage coal combustion (Reuters, May 14) read more

($ 1 = € 0.8447)

Editing by Edmund Blair

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