Gas prices in Europe jumped as much as 30 percent on Monday after Russia said one of its main gas pipelines supplying Europe would remain closed indefinitely. This has sparked fresh fears about gas shortages and rationing in the European Union this winter.
The benchmark gas price rose as high as 272 euros per megawatt hour (MWh) when the market opened after Russia said on Friday that a leak in equipment on the Nord Stream 1 pipeline meant it would remain shut after a three-day maintenance shutdown last week.
Europe accuses Russia of using energy supplies as a weapon in retaliation for Western sanctions imposed on Moscow over its invasion of Russia.
Russia says the West has launched an economic war and sanctions have hampered the pipeline.
The Nord Stream 1 pipeline stretches 1.200 kilometers under the Baltic Sea from the Russian coast near St. Petersburg to northeastern Germany. It was opened in 2011 and a maximum of 170 cubic meters of gas can be transported per day from Russia to Germany. But it was already running at just 20 percent capacity before flows were halted for maintenance last week.
Russian gas delivered via Ukraine, another major route, has also been cut. This left the EU to fend for itself in finding alternative gas supply options to replenish supplies for the winter.
Several states have launched emergency plans that could lead to energy rationalization and raise the prospect of a recession.
"Supply is hard to come by, and it's getting harder and harder to replace any amount of gas that isn't coming from Russia," said Jacob Mandel, senior commodities associate at Aurora Energy Research.
EU energy ministers are due to meet on September 9 to discuss options to curb a sharp rise in energy prices, including gas price caps and emergency credit lines for energy market participants, according to a document seen by Reuters.
German Chancellor Olaf Scholz said on Sunday that the country is preparing for a complete gas supply cutoff.
In its search for alternative gas supplies, Germany is rapidly setting up temporary liquefied natural gas (LNG) terminals to receive gas from producers further afield, and plans to build permanent LNG facilities.
The global LNG market was already down, as the world economy used up supplies in the recovery from the pandemic.
Klaus Müller, the president of Germany's Federal Energy Regulatory Agency, said in August that even if Germany's gas storage facilities were 100 percent full, they would be empty in two and a half months if Russian gas flows stopped completely.
German warehouses are now about 85 percent full, while storage capacity across Europe reached the 80 percent target last week.
Although Russian gas is still flowing to Europe via Ukraine, albeit in reduced quantities, analysts say those supplies could also be disrupted by the conflict.
Until last year, Russia accounted for about 40 percent of gas imports into the EU.
Bonus video:
