Norway outage: European gas prices hit their highest level this year

European gas prices have climbed to their highest level this year because of an outage at a key supplier, Norway’s Equinor. Prices are also being pushed higher by concerns over tensions in the Middle East and rising demand for LNG in Asia, which is increasing competition between Asian and European markets, the Financial Times reports.

The main European benchmark for natural gas, the price at the Title Transfer Facility (TTF) trading hub, rose by as much as 3.6% to 43.68 euros per MWh, its highest level since last December. The increase came despite exceptionally high gas storage levels in the EU. According to the latest data from Gas Infrastructure Europe, European storage facilities were 95.31% full as of 22 October.

The situation highlights the region’s continued sensitivity to disruptions in natural gas supplies after it largely shifted away from Russian gas in 2022 following Russia’s invasion of Ukraine.

The outage in Norway began on Tuesday, 22 October, when state-owned energy company Equinor announced production restrictions at the Sleipner B platform in the North Sea due to a smoke warning in electrical equipment. Production was cut by 5.1 million cubic metres per day. The company said, however, that the resulting reduction in gas exports would have no impact on its commitments to customers. The production outage at Sleipner B is expected to last until Monday, although the duration may change, Norwegian gas export system operator Gassco said.

Norway has replaced Russia as the EU’s largest gas supplier and now accounts for approximately 30% of total imports. Europe has also replaced Russian pipeline gas with imports of liquefied natural gas (LNG), which is sensitive to geopolitical tensions, particularly between Israel and Iran, as around 20% of global LNG supplies pass through the Strait of Hormuz. With LNG supplies limited, Europe has to compete with Asian markets.

“Winter is approaching, and European demand will depend on the weather and temperatures. A normal or cold winter will put upward pressure on prices,” Norwegian company Equinor’s chief executive Anders Opedal said on Thursday after the release of its third-quarter results.

According to Opedal, European gas prices are under upward pressure due to rising demand in Asia and uncertainty about future supplies of Russian gas and LNG. Demand in Asia is increasing competition in the market, while uncertainty remains in Europe over the launch of new LNG projects.

Competition for supplies is fiercest during the winter months, when demand for heating rises. Europe’s gas stocks alone are not enough to cover winter consumption. Laura Page, LNG intelligence manager at analytics firm Kpler, noted that traders are watching the future of Russian gas supplies through Ukraine. The transit agreement between Ukraine and Russia, which allows gas to be transported, expires at the end of December, and traders do not expect a new one to be signed.

Despite the recent increase, gas prices remain well below the levels of more than 300 EUR/MWh seen during the energy crisis that followed the outbreak of the war in Ukraine.