European natural gas prices climbed to their highest level in more than two weeks on Aug. 11, according to Bloomberg, as the continent grapples with a heat wave and braces for a potentially deeper supply crunch over the winter.
Benchmark futures increased as much as 5.5%, reaching levels seen during the first weeks of Russia’s war in Ukraine. Prices have been elevated by curtailed supplies from Russia, but now a climate crisis is compounding the situation. Dutch front-month gas, the European benchmark, rose 1.3% to close at €208.11 ($215.10) per megawatt hour.
German potash and salt producer K+S Group, Kassel, said on Aug. 11 its fourth-quarter outlook assumes a scenario for a 25% reduction in natural gas availability, though unlike nitrogen producers, the company only needs the gas as an energy source, not for the product itself (see related earnings story).
“When you look at the plants that have announced shutdowns, BASF, Yara, OCI, and others, it’s substantial,” said Bert Frost, Senior Vice President of Sales, Market Development, and Supply Chain, CF Industries Holdings Inc., speaking at the Jeffries Industrials Conference on Aug. 10. “So we don’t see the full shutdown of European assets, but it could be 10 million mt.” He added that some plants will stay up to produce CO2 and some finished products.
“In a world of 180 million mt of consumption of ammonia and a globally traded tonnage of about 17-20 million mt, adding 10 million additional tons of demand tightens up the market as we have said.” He added other constraints facing the nitrogen industry, such as tons not coming out of Russia, Ukraine, and China, with the latter historically exporting 4-6 million mt of urea, which represented 10% of global urea trade.
CF CFO Christopher Bohn added that a good portion of the new nitrogen tons that are coming up in the next four years are in Russia. “Some of that is going to be deferred or delayed given the sanctions that are on with just getting equipment.”
“Despite the gas supply crisis in Europe, gas ended up as the largest overall source of power generation in Europe in July, showing how few alternatives there are,” Rystad Energy said in a note.
France, which normally exports electricity, has about half of its nuclear plants offline for maintenance. Hydropower is negatively impacted by the low river levels across Europe, as are nuclear plants, which require water for cooling.
The Rhine – northwest Europe’s most important river for the transport of industrial goods – is set to become virtually impassable at a key waypoint in Germany on Aug. 12 due to low water. That could severely restrict the flow of coal, fuels, and other commodities.
Germany last month raised its target for natural gas storage to 95% full by Nov. 1, compared with 90% previously.
“Here in Germany, very often measures need to be implemented by the regulator,” Annegret Groebel, President of the Council of European Energy Regulators, said on Bloomberg TV on Aug. 11. “Maybe in the worst-case, if Russia cuts off the gas, there might not be enough gas for the whole demand, then there would be rationing.”
Russian gas flows via Ukraine and the Nord Stream pipeline remain steady, but at low levels. “All eyes are still on Russia and if the country decides to cut supply to Europe completely. This still causes a lot of risk premium to be priced in,” analysts at trading firm Energi Danmark said in a note.