(Bloomberg) -- European energy prices surged as concerns about Russian pipeline supplies across Ukraine stoked volatility across gas and power markets.
Benchmark futures are trading near the highest this year since fears of supply shortages gripped the market following Ukraine’s incursion into Russia’s Kursk region. Electricity prices in Germany and France have followed gas.
Market anxiety is high even though Russian pipeline gas supplies continue flowing via the Sudzha intake point after Ukrainian troops made a surprise cross-border incursion last week.
Separately, Ukraine said late Sunday that Russian troops started a fire on the grounds of the occupied Zaporizhzhia nuclear plant, but radiation levels appear to be normal.
Europe has weaned itself off most Russian pipeline gas supplies since the war started in 2022, but some countries — particularly Austria and Slovakia — still rely on it. Sudzha is now the only operating transit station for Russian flows across Ukraine to the European Union.
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The focus is also on the heavy maintenance beginning at Norwegian facilities later this month along with lower supplies from the Nordic producer amid some ongoing works.
Europe’s competition with Asia for liquefied natural gas cargoes may further tighten the market. For now, elevated gas prices during the crucial stockpiling season will likely attract more supplies from the US, the top provider.
Europe’s LNG imports slumped in July, while Asia received the most monthly US cargoes since 2021, ship-tracking data compiled by Bloomberg show.
Softer LNG demand in Asia this month, partly due to easing temperatures and heightened geopolitical risk in the Middle East, is altering the profitability of LNG shipping routes, “opening up the potential for more US cargoes to divert to Europe,” according to S&P Global Commodity Insights.
Still, competition for LNG remains fierce, as last month illustrated how quickly Europe’s flow of the fuel may dry up. Heat waves, particularly in Asia, have helped drive demand. China’s gas power capacity is expanding rapidly, though the surge has been limited by high costs and the availability of fuel supplies, according to BloombergNEF.
“We’ve seen a heat wave in both Japan and China in the last month, with their fleets responding by increasing output,” said Tom Roberts, chief executive officer of London-based Xterna Group, which analyzes energy data. China also is burning more gas.
“The elephant in the room is this upcoming winter,” Roberts said. “The focus seems to be on geopolitics in general at the moment, yet these gas-intensive countries are consuming record levels.”
Dutch front-month gas futures, Europe’s benchmark, fell 1.8% to close at €39.66 a megawatt-hour, paring some earlier gains.
--With assistance from Eamon Akil Farhat and William Mathis.
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