European gas surges 40% as EU pledges action amid record rally

European energy prices extended their blistering rally as the region-wide supply crunch showed no sign of easing, prompting the European Union to pledge swift action to protect the economy.  

Dutch and U.K. gas futures have jumped 60% in just two days, hitting fresh records along with surging power as EU lawmakers debated the crisis. EU energy chief Kadri Simson said the bloc plans to revise gas-market rules by year-end to prevent soaring energy costs from stifling the economic recovery. 

EU Vows Swift Action to Prevent Energy Crisis Hurting Recovery

Global gas and coal markets have tightened just as the heating season starts in the northern hemisphere, with limited supply failing to catch up with rebounding demand. Sky-high costs are threatening to boost inflation and starting to weigh on industrial production. 

The inflation risk has already pushed up U.K. government borrowing costs and prompted industries to warn of plant shutdowns. France, Spain and three other European countries have called on the bloc to take urgent action to cushion the blow of soaring gas prices -- and investigate their cause.

“This is just ridiculous,” said Tom Marzec-Manser, an analyst at ICIS. “Almost impossible to even justify or qualify how and why it’s moving so fast and so high.”

Front-month Dutch gas futures jumped as much as 40% to a record 162.125 euros a megawatt-hour after closing up 20% the day before. The U.K. equivalent benchmark surged as much as 39%, hitting an unprecedented 407.82 pence a therm. 

 

Colder weather is seen extending into northern parts of Europe next week. Temperatures across mainland Europe are set to drop below normal levels by next Wednesday, according to The Weather Co. 

Read also: Why Nord Stream 2 May Not Be Ready in Time for Europe’s Winter

Europe’s gas stockpiles are at their lowest seasonal level in more than a decade, while supplies from top seller Russia are limited and global competition for liquefied natural gas is intense. 

“We are currently living exceptional circumstances,” analysts at consultant Engie EnergyScan said in a note. “The world gas market has never been in a situation where Asia and Europe were obliged to compete fiercely for the marginal LNG cargo available -- as the latter was supposed to benefit from comfortable pipeline supply.”

On Wednesday, Nord Stream AG and Nord Stream 2 AG won a boost in their fight against EU rules that subject all new and existing pipelines involving foreign suppliers to the EU’s energy market-opening requirements. It’s still unclear when supplies through Nord Stream 2, the new controversial pipeline from Russia, may start.