Gas price hits record high in Europe due to supply issues

Natural gas contracts hit new highs in Europe on Tuesday, as soaring prices continue to put pressure on the region’s energy sector ahead of the winter spell.

November contracts at the Dutch hub TTF – a European benchmark for natural gas – were trading at around 118 euros per megawatt hour (MWH) just after noon in London. The first month contract rose nearly 19% on the day, setting a new record, and is up nearly 400% since the start of the year.

In the UK – which has been hit particularly hard by soaring wholesale natural gas costs – November prices rose 14% to £ 2.79 per therm on Tuesday. Meanwhile UK wholesale gas for immediate delivery rose 23% to £ 2.50 per therm.

The surge in wholesale prices has been partly caused by increased demand, particularly from Asia, as economies emerge from lockdowns induced by Covid-19. A cold European winter and spring also meant that supplies had already been severely depleted in the summer.

Meanwhile, declining domestic production, adverse weather conditions in the United States, and critical maintenance work have created a tight gas market and made it difficult to resupply the gas before the coming winter across the region.

Several UK energy providers collapsed amid the gas price crisis. September alone saw nine companies go out of business, according to reports.

In a typical year, between five and eight companies leave the UK market, according to UK Business Secretary Kwasi Kwarteng.

Speaking to CNBC’s “Street Signs Europe” on Tuesday, Greg Jackson, CEO of Octopus Energy – which recently absorbed more than half a million customers from collapsed competitor Avro – said many companies did not managed to weather the crisis because they “bought short and sell long.”

“Octopus was able to cover its supplies,” he said. “Today we have over 3 million [customers], so you can really cover yourself on a large scale. I think those [failed] companies hoped that if prices fell they could get customers back with a good deal, if they increased they would be able to close the hatches and get through the crisis. This crisis is so great that no one could overcome it if they were not covered. “

Jackson suggested that stress tests performed in the banking sector should be applied in the energy sector to ensure that companies operate responsibly.

“What we have seen here is the need to prevent the [same] kind of turmoil, “he told CNBC.” We don’t need masses of regulation, just mild stress tests. We don’t want to block competition when the competition is between companies that behave responsibly. “

Jackson added, “What we need to do now is make sure that the competition is based on well-run businesses, with low costs because they are efficient and use technology, rather than because they are competitive. the market.”

Rising gas prices are not unique to Britain. In recent weeks, the governments of Spain, Italy, Greece and France have taken drastic measures to minimize its impact on consumers.

French lawmakers are pushing for the EU to become less dependent on natural gas from external markets. Most of the block’s supplies come from Russia and Norway.

However, Britain is particularly vulnerable to the current price crisis, as gas is crucial to the UK’s energy supply. It plays an important role in heating, industry and power generation, and more than 22 million homes are connected to the country’s gas network.

The country’s largest source of gas is the British Continental Shelf, which accounted for around 48% of total supply last year. However, UCS is a mature source, which means that it must be supplemented with gas imported from international markets.

In September, Britain’s Kwarteng told Sky News the government was considering “many options” to protect suppliers from high wholesale prices, including potential state-guaranteed loans. However, he suggested that not all energy suppliers would be eligible for such a scheme.

The UK has limits on how much suppliers can charge consumers for energy, with price caps reviewed by the government every six months. Some expect the current cap to be lifted when it is reviewed by ministers in April, meaning UK households will absorb some of the increased wholesale costs.

Analysts have warned that rising gas prices will likely translate into high levels of inflation. In a report on its September monetary policy decision, the Bank of England said the inflation rate was likely to rise to “slightly above” 4% this year, double its target level.

– CNBC Silvia amaro contributed to this report.