Germany triggers stage two of emergency natural gas plan, prices rally

 Quantum Commodity Intelligence – Germany announced Thursday it is moving to the next level of its emergency natural gas plan, as reduced flows from Russia threaten to derail Europe's plans to reach 80% storage levels in time for the crunch winter period.

Economy Minister Robert Habeck said Germany would move to stage two of its three-stage plan, which in effect means that Europe's largest economy sees a high risk of long-term gas supply shortages.

"We mustn't delude ourselves: cutting gas supplies is an economic attack on us by [Russian President Vladimir] Putin," Habeck said in a statement.

"We defend ourselves against this. But it will be a rocky road that we as a country now have to walk. Even if you don't really feel it yet: we are in a gas crisis," he added.

Russia says it had been forced to dramatically reduce flows on the Nord Stream 1 due to maintenance equipment currently stranded in Canada due to sanctions, but a number of EU states have questioned Russia's motives.

Habeck said gas had now become a scarce commodity and warned an extraordinary price rally could persist. "This will affect industrial production and become a major burden for many consumers. It's an external shock," Habeck said.

Prices

Benchmark Dutch TTF futures for July were trading up 5% Thursday at €133.50/MWh, having surged from around €80/MWh at the start of last week in a rally that was initially triggered by a blast at the US Freeport LNG export terminal.

Last Sunday Germany and Austria relaxed bans on burning coal for power generation, while the Netherlands has since made a similar announcement.

Coal prices have also rallied over the past week with the ICE-listed API2 Rotterdam futures contract for July trading around $380/mt Thursday, up around 25% over the past week, as coal prices hit the highest level since early March when energy prices spiked following Russia's invasion of Ukraine.

The shortfall in Russian gas flows has also been felt in Asia, Europe's main competitor in the LNG spot market, with benchmark JKM prices for July gaining around 60% since the Freeport blast to close Wednesday at $37.11/mmBtu

At the same time, Asia/Pacific coal prices have also gained over 20% with FOB Australia Jul22 coal futures trading Thursday at $399/mt, basis Newcastle, close to the record highs of above $400/mt in late May.