European gas prices jumped further on Wednesday after Russia followed through on its threat to make further cuts in gas supplies to the region.
Gas prices rose 12 per cent early on Wednesday and have risen by more than a third this week from already extremely elevated levels as Europe struggles to fill gas storage sites ahead of the winter.
The European benchmark TTF contract has reached €220 a megawatt hour, leaving it on track to hit a new record closing high, exceeding the previous peak in the immediate wake of Russia’s invasion of Ukraine. The surge has left gas prices at roughly 10 times the level it traded at prior to the start of Russia’s squeeze on supplies last year.
Gascade, Germany’s gas network operator, said flows on Nord Stream 1 had roughly halved to 20 per cent of capacity as of Wednesday morning.
The key pipeline, which connects Russia with Germany, was first cut to 40 per cent of capacity in June, leading European politicians to accuse Russia of weaponising gas supplies in retaliation for sanctions imposed following its invasion of Ukraine.
Russia blamed the reduction of flows on Nord Stream 1 on problems with turbines that it said had been exacerbated by western sanctions. But the country’s state-owned gas export monopoly, Gazprom, has not made up the shortfall on alternative routes.
The EU has moved to reduce reliance on Russian gas, which made up about 40 per cent of the bloc’s supplies prior to the invasion of Ukraine. It has also asked members this week to make voluntary cuts to demand, to reduce consumption by 15 per cent to help with filling storage sites ahead of the winter.
But fears remain that industry and households could face rationing or shortages this winter, with the potential for Russia to make further cuts to supplies.
Analysts at Goldman Sachs said this week that “price-driven demand destruction” was increasingly becoming necessary “to help compensate for such large supply losses”.
Eni, the Italian energy company, said it had been informed by Russia’s Gazprom that it would receive 27mn cubic metres of gas on Wednesday, down 20 per cent from the 34mn it had received in recent days.
In the past few months, Italy has reduced its dependence on Russian gas, from about 40 per cent of its total gas imports to near 25 per cent, with a large increase in imports from Algeria — which is now Italy’s single largest supplier — picking up the slack.
Mario Draghi, in a speech to Italy’s parliament last week before he resigned as prime minister, said the country’s “unacceptable energy dependence” on Russia was “the consequence of decades of shortsighted and dangerous choices”.
Draghi said he hoped Italy would be in a position to stop importing gas from Russia entirely within the next 18 months.