Gas Jumps as Europe Struggles to Fill Russian Supply Gap

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European natural gas prices rose as Russia’s deep supply cuts are slowing the pace of refilling storage sites, threatening to fall short of the levels required to keep homes warm in the coming winter.

Benchmark futures started the week with a gain of as much as 6.9%. Buyers have found it more difficult to replace Russian gas from elsewhere after flows through a major route to the European Union were cut by 60% earlier this month. Germany is warning of rationing, while EU Energy Commissioner Kadri Simson said Monday there may not be enough supply worldwide to fully replace Russian flows.

“There’s the threat of a scenario where gas would have to be rationed which, in my view, would lead to a severe economic crisis in Germany and Europe,” German Economy Minister Robert Habeck said before a meeting of European Union energy ministers in Luxembourg on Monday. “A supply crisis in one member state will lead to an economic crisis in another.”

Also read: EU Confronts Low Gas Storage Risk in Test of Unity on Russia

Full storages are critical for Europe to get through winter when demand for heating peaks. Stock levels are currently more than half full, but still below the average of the last five years. Boosting them could prove to be challenging if the Nord Stream pipeline — the biggest link from Russia to the EU — doesn’t return to full capacity following a maintenance shutdown next month. Germany has raised doubts shipments will resume through the link following the works.

High gas prices are already forcing industries to cut demand and putting further pressure on the European economy that’s struggling with surging inflation and meager growth. Sufficient gas reserves are also key in ensuring all of the bloc’s members have enough supply to keep the heating on in the winter. An escalating crisis could test that unity.

Calls to cut consumption are growing in order to avoid such a situation. Chief executives of French energy companies urged consumers to immediately conserve electricity, gas and oil. The German government has already unveiled a package of measures that includes incentives for industry to reduce demand.

“The situation is serious,” EU’s Simson said. Russian flows “might fall even further. We have to step up our response to this Russian action. Russia has chosen a tactic of blackmail. We have to ensure we are prepared for any scenario.”

European companies have boosted imports of liquefied natural gas, and have secured more deals for longer-term supply mainly from US providers. However, incremental purchases are set to reach 80-100 billion cubic meters by 2026, or about 60% of the volume imported from Russia in 2021, according to Bloomberg Intelligence.

Dutch front-month gas futures, the European benchmark, rose 0.6% to 129.25 euros per megawatt-hour as of 12:38 p.m. in Amsterdam. They increased 9.1% last week.