Price of gas soars as Moscow turns off the taps

As Russia cuts its gas exports to the EU, the price of natural gas continues to rise. Restricted supplies could see energy rationing and recession in Germany, Europe’s biggest economy.

“This is very worrying,” says George Saravelos of Deutsche Bank. Last month Russia reduced Nordstream 1 gas flows to Germany by 60% as part of Moscow’s ongoing dispute with Europe. “While the immediate availability of gas in Germany is not an issue, the energy market is starting to price a risk of a complete disruption to gas supplies for winter.” That would mean energy rationing and almost certain recession in Europe’s biggest economy.

“Russian supplies to the European Union are down more than 40% from last year,” says Craig Mellow in Barron’s. That has sent European gas prices up 70% in three weeks. Prices for 2023 delivery of electricity have followed, tripling since the start of the year. EU gas storage is 57% full – more than this time last year – and Europe has “energetically scoured the world for non-Russian gas” in recent months.

Still, “Germany and other EU economies could face natural-gas rationing as early as October if Russia maintains its current squeeze”, according to Jonathan Stern of the Oxford Institute for Energy Studies. While governments will protect residential users, “a broad range of manufacturers may face energy quotas”.

France has begun to prepare for “a total disruption of Russian gas supply”, say Vincent Collen and Sharon Wajsbrot in Les Echos. A draft law would give ministers the power to override market forces and issue direct orders to gas-fired power plants, taking France one step closer to “a war economy”.

Natural gas prices have risen by 700% in Europe since the start of 2021, say Gerson Freitas, Stephen Stapczynski and Anna Shiryaevskaya on Bloomberg. Once a “sleepy commodity”, natural gas now “rivals oil as the fuel that shapes geopolitics” and dictates the economic fortunes of nations.

SEE ALSO:

Why energy prices are so high right now
The transition to renewable energy is easier said than done

Get ready for the coming oil glut

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