Gas in Europe wobbles as efforts to ease crisis counter winter risks

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(Bloomberg) – European natural gas prices have fluctuated after three days of declines, with traders questioning whether countries’ stepped-up efforts to mitigate a crisis will be enough to avoid shortages this winter.

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Benchmark futures erased earlier losses but hovered near the lowest levels since late July. The German government has released an additional 2.5 billion euros ($2.5 billion) in credit lines for gas purchases to ensure sufficient supplies for the winter, while Chancellor Olaf Scholz will pursue new agreements during his trip to the Middle East this weekend. The Netherlands is preparing to unveil some 16 billion euros in household support.

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This follows measures taken by the United Kingdom and the European Union to stem a crisis that has brought the region’s economy to the brink of recession. Discussions continue within the European Commission on what else could be done before the start of the heating season next month. He has already proposed higher taxes on energy companies, mandatory restrictions on electricity consumption during peak hours and increased liquidity in the energy market.

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Expectations of a gradual return to the maintenance of Norwegian gas production and some French nuclear capacities also add to the bearish sentiment of recent days, according to EnergyScan, the market analysis platform of Engie SA.

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

Yet the threat remains of further disruptions to Russian supplies, particularly via 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.

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Storage construction “has been very impressive,” analysts at Deutsche Bank AG said in a research note. “But with the strong possibility that there will be no more Russian gas flowing this winter, unless the temperatures are mild, it is likely that rationing, in one form or another, is likely.”

Higher demand for LNG in Asia during the winter will also intensify competition for Europe, which could drive up fuel prices. Japan, the world’s second largest importer of frozen gas, 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 it needs to replenish depleted stocks 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 said.

First-month Dutch gas, the European benchmark, was trading up 1.2% at 184.50 euros per megawatt hour at 11:43 a.m. in Amsterdam, after falling 6.8% earlier. The UK equivalent advanced 4.8%, after last week’s losses, as traders returned after a long weekend in Britain.

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