Natural gas prices rose as much as 13% on Wednesday as flows on the Nord Stream 1 pipeline fell to a fifth of normal capacity. European politicians have accused Russia of rigging gas supplies in retaliation for sanctions imposed after the invasion of Ukraine. The key Nord Stream 1 pipeline, which links Russia to Germany, was first cut to 40% of capacity in June, before Moscow threatened further cuts this week. Rising energy prices have sparked a cost-of-living crisis and increased costs for industry, threatening to push the region into recession. It has already forced European capitals to take action to try to protect consumers and industry from low prices. Germany has spent billions of euros bailing out gas utilities to try to ensure it has enough supplies for the winter. France is nationalizing state-backed electricity company EDF to help curb costs for households, while the UK has put together a £15bn package to support voters with rising bills. However, the gas crisis has intensified in recent weeks as Russia has tightened supplies. The European benchmark TTF contract on Wednesday hit a high of 222.5 euros per megawatt hour, before falling back to 202.5 euros. The contract is up by about a quarter this week and more than double the level at which it was trading in early June, leading to expectations that more government aid will be needed. At these levels, the price of natural gas is equivalent to an oil price of $380 a barrel, almost four times the current price. “Prices are so high that we really don’t know how the economy or demand will respond — we’ve never had anything even close to these price levels,” said Ira Joseph, an energy consultant with decades of experience in the industry. “We don’t yet know how all the governments will react. It’s safe to say that few options will be taken off the table at this point.” The EU has moved to reduce reliance on Russian gas, which made up about 40 percent of the bloc’s supplies before the invasion of Ukraine. It also asked members this week to make voluntary demand cuts, reducing consumption by 15 percent to help fill storage facilities ahead of winter. But fears remain that industry and households could face constraints or shortages this winter, with Russia potentially making further supply cuts. Analysts at Goldman Sachs said this week that “price-driven demand destruction” is becoming increasingly necessary “to help offset such large supply losses.” Natural gas traders said their ability to seamlessly buy and sell contracts in the market had deteriorated, leading to increased volatility, with financial investors pulling back and utilities doing the bare minimum of trading to secure supplies. Russia blamed the decline in flows in Nord Stream 1 on problems with the turbines that it said had been exacerbated by Western sanctions. However, the country’s state-owned gas export monopoly, Gazprom, has not covered the shortfall in alternative routes. Kremlin spokesman Dmitry Peskov denied that Gazprom was cutting supplies to force the EU to lift sanctions against Russia and said the sanctions themselves were blocking gas flows. “Gazprom ships as much as it needs and as much as possible. We know that the technical possibilities of gas extraction have declined. They have shrunk. Why; Because technical maintenance has become complicated due to the restrictions and sanctions imposed by the EU,” Peskov told reporters, according to Interfax. German utility Uniper said flows were reduced to 20 percent of what it had requested from Gazprom. Eni, the Italian energy company, said it had been told by Gazprom that it would receive 27 million cubic meters of natural gas on Wednesday, 20% lower than the 34 million it had received in recent days. Italy has reduced its dependence on Russian gas, from about 40 percent of its total gas imports to almost 25 percent, with a large increase in imports from Algeria — now Italy’s biggest supplier — to accelerates. Mario Draghi, in a speech to the Italian parliament last week before resigning as prime minister, said the country’s “unacceptable energy dependence” on Russia was “the consequence of decades of short-sighted and dangerous choices.”
