European gas supplies suffered a double hit on Tuesday after a major US liquefied natural gas export terminal said it would be shut down for at least three months and Russia said it would cut reduced flows through an important route to Germany.
Freeport LNG, which accounts for about a fifth of U.S. LNG exports and about 10 percent of European imports this year, said on Tuesday it would fix after an explosion at its factory last week could last until the end of the year, with only a fraction of the activity set to resume after 90 days. Last week Freeport said the station would reopen in early July.
At the same time, Russia said it would reduce capacity on the Nord Stream 1 pipeline to Germany by about 40%, blaming the cuts on late payments of a key piece of technical equipment that Siemens Energy said was blocked by Canadian sanctions against Moscow. .
Double threat to Europe’s gas imports illustrated the continent’s continued vulnerability to supply disruption as the country tries to reduce its dependence on Russian gas following Moscow’s invasion of Ukraine in February.
European benchmark gas prices rose more than 15% to €99/megawatt hour, while UK gas contract for July delivery rose 25% to £1.97/heat, with traders warning of tighter supply in the coming months.
In contrast, US natural gas fell more than 15% on the news, as traders learned of a longer-than-expected shutdown from the Freeport terminal – a major source of fuel – with contract last month for Henry Hub sells for around $7.20 per million British thermal units.
Gas prices in Europe jumped last year after Russia squeezed supplies ahead of the invasion and as concerns about supply disruptions grew, triggering inflation and a cost-of-living crisis for many countries. family.
The EU has managed to avoid targeting Russia’s gas flows directly with sanctions – which before the invasion accounted for 40% of total EU supply – even as the EU has cut its dependence.
But Germany’s Siemens Energy said on Tuesday that the gas turbines it supplied to Russia’s Gazprom to help compress gas on the Nord Stream 1 pipeline were hit by Canadian sanctions after undergoing in-house maintenance. machine in Montreal. Ottawa last week extended sanctions against Russia to ban the provision of technical services to Russia’s oil, gas and chemical industries.
“Due to sanctions imposed by Canada, Siemens Energy is currently unable to deliver overhauled gas turbines to customers,” Siemens Energy said. “We have notified the Canadian and German governments and are working to find a possible solution.”
After surging, gas prices have stabilized in recent months as additional LNG supplies have been shipped to Europe, helping to rebuild pre-winter gas reserves.
Freeport had previously said that its factory would be closed for three weeks following the fire. The plant has a processing capacity of 20.4 billion cubic meters of natural gas per year, equivalent to about 17% of the total 118 billion cubic meters of U.S. liquefaction capacity per year and 2% of the country’s total natural gas production. country.
Under the agreement announced in March by President Joe Biden and European Commission President Ursula von der Leyen, the US pledged to secure an additional 15 billion cubic meters to Europe this year. Brussels has said it will aim to increase annual demand for US LNG to 50 billion cubic meters per year by the end of the decade.
Natural gas needs to be liquefied before being loaded onto tankers to transport it around the world.
Gazprom has maintained most of its exports to Europe but has cut back on customers in Poland and Bulgaria for refusing to use the new ruble payment mechanism. German utility companies, among others in Europe, have gone with the ruble payment system, fearing the impact of the loss of supply on the economy.
