Gas Surges in Europe Amid Lower Russian Supply and US LNG Delay

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European natural gas surged after Russia’s Gazprom PJSC said technical issues curbed supply through a key link to Germany just as a major export terminal in the US is likely to remain shut for three months.

Benchmark futures settled 16% higher as Gazprom said flows via the Nord Stream pipeline, the biggest link to the European Union, will be limited by 40%. One of the reasons is that Siemens failed to return on time some equipment it was repairing for the link’s entry point in the Baltic Sea, the Russian producer said Tuesday.

Fears that Russian shipments may be disrupted have persisted for months as the war in Ukraine drags on. Those concerns were compounded last week when a fire broke out at the Freeport LNG terminal in Texas. The operator said it may take 90 days for a partial restart of the facility, far longer than an earlier projection of a minimum three-week shutdown. Full capacity isn’t expected to be available until late 2022.

“That’s yet another sign how fragile the European gas market is,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Europe is already struggling with news of reduced supplies from Russia through Nord Stream.”

Nord Stream flows fall further amid capacity caps

The Texan export terminal has three-quarters of its supply available for spot sales, making it a useful alternative source for Europe as flows from Russia become less certain. The continent needs the supply to fill storage facilities in time for next winter.

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Dutch front-month gas, the European benchmark, hit 101 euros a megawatt-hour and closed at 97.04 euros, the highest in a month. The UK equivalent jumped 28% to 196.55 pence a therm.

Cargoes from larger US plants such as Sabine Pass, Corpus Christi and Cameron LNG could help supply Europe, Zongqiang Luo, an analyst at Rystad Energy AS, said in a note. “Favorable” spot prices mean countries such as Nigeria and Algeria could also increase production to help “fill the void,” he said.

Russian Sanctions

Sanctions against Russia because of the war in Ukraine have left a turbine key for the functioning of the Nord Stream gas pipeline stuck in Canada. A second turbine that’s also due for maintenance cannot be sent for work overseas.

As a result, gas supplies into Nord Stream can be ensured at as much as 100 million cubic meters per day at the moment, down from a planned 167 million cubic meters, Gazprom said. “We have informed the Canadian and German government and are working on a viable solution,” said a spokeswoman for Siemens Energy AG, which manufactured the turbines and handles their maintenance.

Germany’s economy ministry said that supply is “currently guaranteed.” The country gets about 35% of its gas from Russia.