High Energy Prices Hurt European Industry

Cold weather, lower supplies of Russian gas and nuclear plant outages in France have pushed European gas and electricity prices to astronomic levels, driving up energy costs for industry and prompting calls for more government intervention.

Prices for the front-month Dutch TTF gas futures contract, Europe's benchmark, touched a new all-time high of €180.30 per megawatt hour ($59.70 per million Btu) earlier this week.

That was roughly double the prices seen in early December and more than 10 times where prices stood at the same time last year.

Power prices have also soared. Day-ahead baseload prices in the UK, Germany, the Netherlands and France settled at €300-€416/MWh on Wednesday, compared with less than €60/MWh at the same time last year.

LNG Diverted to Europe

With European gas prices now at a premium to Asian spot LNG prices, a wave of LNG cargoes has recently been diverted from Asia toward Europe.

That has helped take some of the sting out of TTF prices, which were trading around $41.30/MMBtu late on Thursday.

Nevertheless, prices remain very high by historical standards, and this will likely keep drawing LNG cargoes to Europe in early 2022.

"There are definitely factors that can keep [European prices] up there, and potentially push it to not just a short-term premium," said one European broker.

Gazprom Limits Exports

Gazprom — which has a monopoly on pipeline exports of Russian gas — continues to keep the European market on tenterhooks.

It has limited its European exports to contractually required volumes as approval of the company's new Nord Stream 2 pipeline recedes further into 2022.

The Russian gas giant's Yamal-Europe pipeline was still operating in reverse on Thursday, sending gas from Germany to Poland rather than delivering it to Europe's most populous country and its biggest economy.

The company halted shipments of gas to Western Europe on Tuesday, insisting that it did so for purely commercial reasons.

Depleted Stocks

Meanwhile, Ukraine's Naftogaz filed a complaint with the European Commission on Wednesday, accusing Gazprom of seeking to create an "artificial deficit" of gas so the EU would facilitate "rapid commissioning of the Nord Stream 2 pipeline."

The limited flows of Russian gas into Europe have led to the draining of already-low European stocks.

Gas storage facilities are now just 58% full, versus 67.5% full at the start of December and over 77% full at this time last year, according to Gas Infrastructure Europe.

The year-on-year deficits are particularly steep in Germany and Austria, where Gazprom owns or controls storage.

Cry for Help

Large industrial gas and power users in Europe have warned for months that they may have to curtail or halt their operations in response to mounting energy costs.

And they are now begging EU policymakers for help.

In a joint statement on Wednesday, groups representing energy-intensive industries across the bloc asked Brussels to take swift action.

"A prolonged period of unbearably high energy prices could lead to severe losses, relocation of European companies and an increase of carbon leakage," the Glass for Europe group warned.

Shutdowns

Nyrstar, a metals manufacturer owned by Trafigura, said last week that it would reduce output from its French zinc smelter in the first week of January. It has already cut back production in Belgium and the Netherlands.

In Romania, fertilizer producer Azomures started preparing for a temporary suspension of production earlier this month.

And in Hungary, sky-high prices forced fertilizer producer Nitrogenmuvek to suspend output for four weeks.