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European Gas Prices Hit Record High

Benchmark natural gas prices in Europe set a new record today reaching $1,200 per 1,000 cu m, or over $100 per MWh.

TASS reports that one of the reasons for the latest jump in prices could be a new decline in flows along the Yamal-Europe gas pipeline from Russia. According to the report, the flow of gas dropped threefold this morning but later accelerated, averaging 500,000 cu m per day, even though it remained much lower than the rate gas flowed on Thursday, which was 2.2 million cu m per day.

This is the second time this week that the flow along the Yamal-Europe pipeline has declined. On Tuesday, gas flows fell by more than half, Reuters reported, citing Gazprom as saying the decline was the result of a client request and it would be temporary. The report noted that Gazprom had booked capacity of 1.5 million cu m daily via the Polish stretch of the pipeline for October.

A contributing factor for the price of gas may well have been China’s government order from yesterday to power utilities to do whatever it takes to secure enough supply of gas, oil, and coal for the winter. The news immediately sent LNG prices on the spot market flying, but it is likely to have caused reverberations in the European gas market.

The gas crunch that hit Europe last month is now forcing utilities to turn to oil and even coal after years of shunning the dirtiest fossil fuel. However, these are running expensive, too. In fact, as Bloomberg reported on Thursday, some European power utilities had reached out to Russian coal suppliers for help, but the latter have signaled that any sizeable increase in coal exports was unlikely due to capacity constraints.

“If all the European utilities switch to coal, it will result in a huge spike in coal demand that Russia alone cannot provide for on such a short notice,” Natasha Tyrina, a principal research analyst at Wood Mackenzie, told Bloomberg. “That would need supply from other countries as well, from the U.S. for example, but the situation there is similar to everywhere else.”

By Charles Kennedy for Oilprice.com

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