Europe Scrambles as Dutch Benchmark TTF Soars

European natural gas customers got no relief from markets on Friday as prices spiked above benchmark Brent crude, hitting an intra-day high of almost €100 per megawatt ($33.95 per million Btu) on the first day of October.

The crisis has prompted national leaders to take action to mitigate the impact of the soaring prices.

On Thursday, French Prime Minister Jean Castex vowed to block any future tariff increases on retail gas and electricity rates until prices fall.

"We are going to put in place what I would call a ‘price shield’ for gas and electricity," Castex told the TFI television channel this week following an already scheduled 12.6% rise in gas prices. "We are going to protect ourselves from these price increases."

But there is little relief in sight. Europe is heading into winter with extremely tight gas supplies and lower pipeline flows from Russia.

The November benchmark Dutch TTF contract hit almost €100 per MW before retreating; the contract has ballooned more than 300% since July. Brent is currently hovering around $78 per barrel.

Skyrocketing gas and electricity prices are a global problem, which is fast turning into a crisis as governments juggle economic recovery plans with climate change commitments.

Higher prices will impact already vulnerable EU member states, as well as the UK, where consumers are facing higher energy prices for a period most analysts believe will last well into the spring.

On the supply side, Russian state Gazprom booked only around one-third of Yamal-Europe gas pipeline capacity for October and started the month supplying far less on Friday.

As it remains reluctant to book any extra transit capacity via Ukraine, the Russian giant is not expected to ease the tight supply situation in the European gas market anytime soon.

French Reaction

France, where gas makes up only single-digit percentages of power generation each year, has taken its second interventionist step to protect vulnerable consumers from the impact of runaway gas and electricity prices.

With memories of the political impact of the "gilet jaune" movement still haunting President Emmanuel Macron’s government, Paris may yet take more interventionist steps as France heads into a presidential election year, with domestic energy policy likely to become a key focus.

In 2018, the "gilet jaune" protests were also sparked by an energy price spike after a government proposal to boost fuel taxes to fight climate change.

The move this week follows a plan by the Italian government unveiled Sep. 23 to set aside $3.5 billion to restrict rising retail gas and electricity bills heading into winter.

Rome has decided to eliminate a series of system charges in consumer bills, cut taxes and increase power and gas bonuses for the less well-off.

Spain Approves Winter Plan

This week Spain approved a winter plan for gas that will require LNG shippers to hold reserves of up to 5½ days’ worth of contracted capacity, up from 3½ days previously.

Reserves must be held in liquid LNG from so that stocks are readily available to meet demand spikes, Madrid said in state gazette Boletin Official del Estado on Sep. 29.

Stocks may be held either in tanks or floating offshore.

Five-and-a-half days' worth of capacity must be held in January, during winter’s peak, according to the plan. December and February requirements will be four days and November and March will be a day-and-a-half.

EU Deflects Criticism

Brussels has called for solidarity among EU member states despite criticism of the single electricity market.

European Commissioner for Energy Kadri Simson said that instead of putting the brakes on the energy transition in the EU, the bloc must remain focused and redouble its efforts to achieve the goals of the proposed "Fit for 55" plan.

All of these issues likely will be discussed when heads of member states meet next month.