German power for next year plunged as much as 26%, while Dutch natural gas fell as much as 11%. Both benchmark contracts extended losses from Monday, after surging to records last week.
Prices have been extremely volatile in recent days amid thin trading and much uncertainty. Russia’s Gazprom PJSC plans to shut the Nord Stream pipeline to Germany for three days of maintenance beginning Aug. 31.
The European Union is preparing to intervene in the short term to dampen soaring power costs, which have fueled inflation and increased the risks of a recession. Meanwhile, storage sites in the region are filling fast, bringing some relief and raising the chances Europe will get through the winter with ample supply.
European Commission President Ursula von der Leyen is set to speak later Tuesday on power market reform. On Monday, she said the EU is seeking to develop an instrument to break the link between gas and electricity prices, adding that the bloc must take urgent steps to address skyrocketing costs.
“Any action which caps power prices will limit the profitability of burning gas for power generation, which could possibly feed through to lower gas demand,” said Warren Patterson, ING Groep NV’s head of commodities strategy, in a report on Tuesday. “Given the uncertainty and limited liquidity in the market, prices are likely to remain trading at elevated levels with a large amount of volatility.”
The Spanish government will propose that the EU apply the same price cap system that it is using, Spanish newspaper El Pais reported. Spain’s top energy official, Teresa Ribera, will make the proposal to uncouple gas from the wholesale electricity market at a Sept. 9 meeting with EU energy ministers. Ribera will also propose limiting the price paid for CO2 emissions, according to the paper.
Still, risks remain. French utility Engie SA said Russian energy giant Gazprom PSJC will curb supplies starting Tuesday “due to a disagreement between the parties on the application of some contracts.”
And a pivot in liquefied natural gas flows toward Asia is seen as increasingly possible as top importers in Japan and South Korea jump into the spot market to refill inventories, driving Asian LNG prices to another five-month high. Europe competes with Asia for LNG.
German next-year power dropped 20% to 610 euros per megawatt-hour by 9:50 a.m. in London. That’s an extreme drop from the record 1,050 euros reached in intraday trading on Monday.
Dutch front-month gas declined 4.3% to 261 euros per megawatt-hour. The contract settled at record high levels last week.