European gas futures gain as Germany sounds alarm over Russia disruption

European natural gas prices rose to a one-week high as Germany triggered the second stage of its gas-emergency plan, adding to mounting concerns across the continent over steep cuts in Russian supplies.

Front-month benchmark futures rose as much as 5.8% after German Economy Minister Robert Habeck enacted the “alarm” phase of the emergency plan, saying that Europe’s biggest economy is in a gas crisis. His comments follow a warning Wednesday that Germany should brace for further cuts in Russian flows after Moscow slashed deliveries on the key Nord Stream pipeline to Europe. 

The Russian supply curbs, which Germany has called politically motivated, has crimped flows to buyers across Europe just as nations stockpile gas for the heating season and further heightened the risk of energy shortages this winter. In total, 12 member states are now affected by Russian unilateral supply cuts, said European Union climate chief Frans Timmermans.

“The risk of a full gas disruption is now more real than ever before,” Timmermans told the European Parliament on Thursday. 

The Nord Stream pipeline to Germany is operating at about 40% of capacity after flows were cut last week in what Russian gas exporter Gazprom PJSC said was due to a technical problem. However, Habeck and Timmermans both described the move as a Kremlin strategy to disrupt fuel security and undermine European unity.

“Germany entering Phase 2 of its emergency gas plan is showing signs of lasting supply tension, adding bullish pressure” on prices, analysts at Inspired Energy said in a note.

The second stage of Germany’s plan tightens monitoring of the market and some coal-fired plants being reactivated. The government held off on an option of enacting legislation to allow energy companies to pass on cost increases to homes and businesses.

The emergency measure comes as Germany rushes to fill gas-storage facilities, which are currently about 59% full. Energy companies have been building stocks to try to reach a government-mandated target of 90% capacity by November, a target Habeck said could “scarcely” be met if Nord Stream flows remain curbed.

As part of the measures, Germany will provide a 15 billion-euro financing to fill its reserves and will launch a gas auction model to encourage industrial consumers to save gas. 

“This action is likely to provide upside to gas markets on increased competition to fill gas storage levels,” Inspired Energy said.

Amid the escalating gas crisis, Italy and Greece plan to once again call for the need to cap natural gas prices, as energy costs are on the rise. 

Dutch front-month gas futures, the European benchmark, gained 5.5% to 134.14 euros per megawatt-hour after slipping 1.3% at the open. Prices have climbed more than 50% since the Nord Stream flows were curtailed.