European natural gas prices headed for the biggest weekly gain since Russia began its war on Ukraine as Moscow’s supply cuts deepen the region’s energy crisis.

Benchmark futures were 50% higher for the week. Eni SpA will receive just half of its requested gas volumes from Russia’s Gazprom PJSC on Friday, compared with about two-thirds the previous day. The cuts have hit others including Engie SA and Uniper SE, and could come as a blow to industries at a time when the region is already struggling with surging inflation. 

Flows through the Nord Stream pipeline -- the biggest link from Russia to the European Union -- have been cut by about 60%. It’s raised tensions with Italian Prime Minister Mario Draghi saying Moscow’s statements that the reductions are due to technical reasons were lies, while Germany has called the move “politically motivated” and aimed at unsettling markets. The Kremlin said on Thursday that the cuts were “not deliberate.”

Europe has been fearing the reductions since it and a host of other countries put stringent sanctions on Russia for its war on Ukraine. The region has boosted liquefied natural gas imports to meet any shortfall and also fill storage sites in time for next winter when demand for heating increases. But that’s also been made harder as an US LNG plant remains shut for longer than initially anticipated following a fire last week.

“Storage was filling up at a good pace,” said Warren Patterson, head of commodities strategy at ING Bank. “However, this has changed abruptly this week,” he said, adding that the Nord Stream reduction “is significant” for Europe.

Dutch front-month gas futures, the European benchmark, were 0.5% lower at 123.74 euros per megawatt-hour as of 9:22 a.m. in Amsterdam. The UK equivalent was little changed.

Source:
courtesy of BLOOMBERG

by Vanessa Dezem

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