European gas prices surge after fire in US compounds Russia supply concern

Europe’s natural gas prices jumped after a fire at a large export terminal in the US wiped out deliveries to a market that’s on high alert over tight Russian supplies.

Benchmark futures traded in Amsterdam snapped a six-day falling streak, while UK prices soared as much as 39% before paring gains. The Freeport liquefied natural gas facility in Texas -- which makes up about a fifth of all US exports of the fuel -- will remain closed for a minimum of three weeks, resulting in at least 10 missed cargoes.

The closure comes as pipeline supplies from Europe’s top providers are also capped. Key facilities in Norway are undergoing annual maintenance this week, while Russia’s supplies are below capacity after several European buyers were cut off for refusing to meet Moscow’s demands to be ultimately paid in rubles for its pipeline fuel. 

“The event highlights Europe’s precarious situation, and it would likely signal an end for now to the calm trading seen in recent weeks,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “An export halt during the high-demand winter months would have triggered a much bigger reaction.” 

The extent of the damage to the Freeport facility is not yet clear, but the fire could potentially knock out about 16% of total US LNG export capacity for an unknown period if it proves difficult to repair, analysts at Evercore ISI said in a note. 

“A worst-case scenario could add to the already tight European market,” said Fabian Ronningen, an analyst at Rystad Energy. But if the terminal can open in three weeks, the impact will most likely be limited, he said.

US LNG is considered a key source for European nations curbing their dependency on the region’s top supplier because of Russia’s war in Ukraine. 

“In the last three months, 68% of all Freeport cargoes were delivered into European markets,” said Tom Marzec-Manser, head of gas analytics at ICIS, citing his firm’s data. “So traders in Europe will be eagerly watching and waiting to see if this outage ends up lasting longer than initially predicted by the operator.” 

Strong gas-storage injections this year could help limit price gains, analysts at Inspired Energy said in a note. Europe’s underground facilities were about 50% full as of June 7 after active refilling in recent weeks, which moved the storage level closer to historic averages, data from Gas Infrastructure Europe show.

Dutch front-month gas, the European benchmark, rose as much as 16% before settling 6.9% higher at 84.88 euros per megawatt-hour. The contract had dropped 16% over the previous six sessions. 

UK next-month futures hit 180 pence a therm before easing to 150.61 pence. Send-outs from Britain’s LNG terminals, a key European destination for US cargoes, fell about 30% Thursday to the lowest since mid-March. 

The continent’s electricity prices also rose, with German contracts for next month adding as much as 11% to 194.50 euros per megawatt-hour before retreating to 187.25 euros.

Pipeline gas supplies to Europe from Norway rebounded after a one-day halt of the giant Troll field for annual tests on Wednesday, but are still below normal as seasonal works at a number of facilities continue. Shipments of Russian gas via the Nord Stream pipeline to Germany continued to edge down on Thursday, grid data show.

Separately, Algeria suspended a two-decade-old cooperation agreement with Spain and moved to freeze trade, escalating their dispute over a former Spanish colony in Africa. The issue has threatened gas supplies to Spain in the past, but flows to the country continued this morning, said ICIS’ Marzec-Manser. 

Spain is confident Algeria’s decision will have no impact on gas contracts, Spain’s deputy Prime Minister Teresa Ribera told Onda Cero radio station.