Austrian Explosion Rattles Europe’s Gas Market

(Bloomberg) - Europe’s energy markets were rattled for a second consecutive day after an explosion at a natural gas hub in Austria threatened supplies already pinched from a closed pipeline in the North Sea and a cold snap across the continent.

Natural gas and power prices jumped in Europe, and Brent crude oil futures rose above $65 a barrel for the first time since June 2015, extending its premium over the U.S. benchmark. Britain, which is struggling to absorb the impact of a crack that shut down a key North Sea pipeline network, felt the biggest increases.

A blast about 9 a.m. at the Baumgarten compressor station in Austria injured at least 18 people and left one missing and presumed dead, interrupting flows at one of the main points where Russian natural gas enters Europe. That followed two days of snow in London and cooler-than-normal temperatures spread from the Alps to Scandinavia, which raising demand for heating fuels.

“It is the worst possible time for a big gas hub to burn, since capacity is needed ahead of the winter and it changes the expectations of how much gas there will be available,” said Arne Bergvik, the chief analyst at Swedish utility Jamtkraft AB. “If weather turns colder and capacity is unavailable, it will absolutely drive up power prices.”

Britain lacks the gas storage sites and web of interconnections that make continental European markets better able to cope with disruption.

Front-month gas in Britain jumped as much as 23 percent to 73.7 pence a therm ($9.86 a million British thermal units) on ICE Futures Europe, the highest since December 2013. The comparable U.K. power contract rose as much as 15 percent, according to broker data compiled by Bloomberg.

Baumgarten, about 50 kilometers (31 miles) northeast of Vienna, transports the equivalent of a 10th of Europe’s gas demand. 

Italy declared a state of emergency for gas, and the impact rippled through energy markets across the continent. The oil company OMV AG, which controls the Baumgarten gas hub, said it would take “days” to restore output, roiling power and gas markets across the continent. 

A separate outage in the North Sea announced Monday affected both oil and gas flows. It will support prices for some types of oil from the Asia-Pacific region and the Middle East as buyers look for alternatives to North Sea supply, according to McKinsey Energy Insights. The link in the Forties system of fields offshore the U.K. is critical because flows through it make up the single largest constituent part of so-called Dated Brent crude.

German power futures for next year climbed to the highest in more than four years, advancing as much as 3.8 percent on the EEX exchange in Leipzig. Coal rose as much as 2 percent to $90.75 a ton, the highest for a front-year contract since May 2013 on ICE Futures Europe. Power prices also jumped in France and the Nordic region.

“For the moment, it will make coal generation a bit more profitable,” said Konstantin Lenz, the Berlin-based managing director of Lenz Energy.

Gas flows into the U.K. surged to a four-year high overnight as shippers responded to higher prices. Liquefied natural gas tankers may be able to fill some of the gap, but those vessels take days or even weeks to arrive, said Massimo Di-Odoardo, principal analyst of gas & LNG at Wood Mackenzie Ltd.

Supplies from the Netherlands, Belgium and storage sites increased. The market was already responding to a halt in production at some North Sea gas fields after a shutdown of the Forties pipeline network was announced on Monday because of a hairline crack. That boosted prices on Monday, when rare snow fell across the U.K., forcing flights to be canceled in London and Birmingham.

“Gas demand is at above average levels because of the cold snap,” Di-Odoardo said by email, estimating the shortfall of supply from the Forties outage at about 10 percent of average winter demand. “If outages persist, prices will remain high for some time.”

Compounding supply problems, the Norwegian network manager on Tuesday cut flows from Troll, Europe’s largest offshore gas field, after an unplanned outage that also affected other sites in Norway, the U.K.’s biggest foreign supplier. Gas flows from Belgium and the Netherlands also dipped from near-record levels after the explosionin Austria.

Baumgarten is Austria’s largest gas reception point and main distribution hub for imports from countries including Russia, Europe’s biggest gas supplier. Moscow-based Gazprom PJSC said it “is working on redistribution of gas flows and does its best to secure uninterrupted gas supplies to the clients on this transport direction.”

Police are investigating the exact circumstances of the blast, which is assumed to be the result of a techical incident, Gas Connect Austria GmbH said on its website.

The U.K. is more vulnerable than normal this winter because Centrica Plc is closing the nation’s biggest storage site after more than 30 years. The Rough facility was able to meet as much as 10 percent of peak winter demand but that is now much reduced as it pumps out its last remaining fuel.

It takes about two weeks to bring LNG from Qatar, the U.K.’s biggest supplier of the super-chilled fuel. Only one tanker, the Bu Samra, is confirmed as arriving in the U.K. this month. The first tanker from Russia’s Arctic plant Yamal LNG may also head to Britain and would arrive in about five days, according to shipping website sea-distances.

“Higher gas prices, higher coal prices and uncertainties about the delivery of gas in all of Europe are driving up power prices,” said Steffen Gursinsky, a trader at Energieunion GmbH in Schwerin, Germany.

Courtesy : bloomberg.com