Gas in Europe jumps as winter risks thwart efforts to ease crisis

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(Bloomberg) — European natural gas prices rebounded after three days of declines as traders questioned whether the continent’s stepped-up efforts to ease a winter supply crisis will be enough to head off shortages.

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Benchmark futures settled up 6.6%, reversing earlier losses that saw prices fall to the lowest level since late July. Governments across the region are deploying billions of euros in funding to ensure sufficient supply as European economic powerhouse Germany moves closer to nationalizing gas giant Uniper SE in a landmark bailout.

The country is also preparing new credit lines for gas purchases, while Chancellor Olaf Scholz will pursue new deals during his trip to the Middle East this weekend.

This builds on the measures taken by the European Union to stem a crisis that has brought the region’s economy to the brink of recession. Separately, the UK plans to cut wholesale prices that are built into businesses’ energy bills this winter, according to people familiar with the matter. This is in addition to a plan to cap household spending for two years.

The market is also closely watching the steady filling of gas stocks in Europe, at around 86%, slightly above the five-year average. Combined with strong imports of liquefied natural gas, this helped prices decline from August highs.

Yet the threat remains of further disruptions to Russian supplies, particularly along the remaining main route through Ukraine. An unusually frosty winter could also tighten the market sharply, depleting stocks at the end of the colder period.

Storage construction “has been very impressive,” analysts at Deutsche Bank AG said in a research note. Still, ‘rationing in one form or another is likely’ given there may not be Russian gas flowing this winter – unless temperatures are mild, they said. .

Increased demand for LNG in Asia during freezing weather will also intensify competition with Europe, which could drive up fuel prices. Japan, the world’s second-largest superchilled gas importer, predicts that its winter will tend to be colder.

Next year could be even more difficult for Europe as it will find itself without the usual volumes of Russian gas needed to replenish depleted supplies over the winter, according to consultant Thunder Said Energy. “2023, 2024 could be worse than 2022,” he said in a note. Government measures to protect consumers from high prices could prevent the destruction of demand needed to balance the market, he added.

Dutch first-month gas, the European benchmark, stood at 194.26 euros per megawatt hour, after falling 6.8% earlier. The UK equivalent advanced 12%, after last week’s losses, as traders returned after a long weekend in Britain.

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