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Gas prices set new record in Europe amid fears of Russian supply cuts

A view shows pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline in Lubmin, Germany, July 21, 2022. (Photo by Reuters)

European natural gas prices have hit new records in the aftermath of sanctions targeting Russia’s energy sector, prompting several European countries such as Italy and Spain to take new measures to bring the crisis under control.

Europe’s benchmark Dutch TTF gas contract advanced to 318 euros per megawatt on Thursday, standing close to the record high 345 euros, which struck the market in March shortly after the start of the Russian operation in Ukraine.

The spike in gas prices comes as Europe approaches a three-day halt in Russian gas deliveries to Germany via the Nord Stream 1 pipeline, raising fears that Moscow will completely cut the gas flow afterwards.

Apart from natural gas prices, electricity prices in both France and Germany surged on Thursday to record high numbers on worries over a winter energy crunch.

“Gas is on a seemingly unstoppable march upwards again, a dramatic move which will intensify the energy crisis,” said Hargreaves Lansdown analyst Susannah Streeter.

“Already plans are being brought in to save energy which will darken streets across Germany and make public buildings colder, but much tougher measures may have to be enforced given dwindling gas reserves.”

Warning about the recession across Europe, OANDA analyst Craig Erlam said that “with the energy crisis unlikely to improve, this likely means another quarter of flat growth at best before the economy falls into recession later this year.”

All eyes are on Federal Reserve chair Jerome Powell’s Friday speech for clues about the Federal Reserve's plans to tame runaway inflation with higher borrowing costs. There are fears that the Federal’s fight against soaring inflation could lead to a recession in the United States, which could in turn affect the European and the global economy.

The European energy crisis has also prompted Italy to update its gas emergency plan next week, a government source said on Thursday, adding Rome will not resort to rationing since it has reduced dependence on Russian energy imports. “The updated plan includes different scenarios, even the worst-case one, and envisages tougher measures in case of further reduction of (gas) flows,” the source told Reuters.

Italy’s existing gas emergency protocol envisages three stages of pre-alert, alert, and the state of emergency, which might come into practice if Russia halts gas exports.

According to the governmental source, one key measure for Italy, in face of energy crisis, is to have a new regasification vessel operational in the Tuscan port of Piombino by March 2023 to expand the country’s LNG capacity.

Carlo Bonomi, head of Italy’s industrial lobby Confindustria, has warned of the risk of widespread company failures if energy prices do not fall across the continent.

Russian journalist Ryan Reed has warned, “It’s not even September and European de-industrialization is already looking irreversible.”

Meanwhile in a bid to bring the gas crisis under control, the Spanish parliament is preparing to ratify an energy-saving decree in a knife-edge vote.

The Spanish government has pledged to cut gas usage by seven percent in the face of reduced Russian gas imports.

Spanish emergency energy savings, which were introduced on August 10 as part of the EU’s attempts to lean away from Russian gas, range from mandatory temperature limits for heaters and coolers to turning off lights in public buildings. To remain in place, they must be approved by parliament.

“(The measures) imply a saving for those who apply them,” Energy Minister Teresa Ribera said on Wednesday, adding that “they also are an inspiration for other European partners.”

European countries are grappling with an economic crisis under the shadow of a looming recession after most of the EU member states imposed sanctions on Russia over the war in Ukraine.

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