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European energy prices rise as US LNG plant set to stay offline

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European energy prices advanced amid concerns about liquefied natural gas imports from a key US facility and the first signs of cold weather.

Benchmark gas futures jumped as much as 13%, following an increase of 16% on Monday. Freeport LNG in Texas will likely extend an outage that began in June, increasing global competition for much-needed supplies right before the winter.

Temperatures on the continent are set to dip below average toward the end of the week, which could lift power and gas prices as heating demand increases. The combination of a cold snap and supply woes is a reminder that the European system will be fragile during the first winter in recent memory without significant Russian flows.

“This increase may seem excessive. But unfortunately it is completely in line with the level of market volatility,” analysts at EnergyScan, the market analysis platform of Engie SA, said in a note. “We will rather have to worry if prices tend to go back above their 1-year average, currently at €133 a megawatt-hour, because it would mean that the uptrend would be back.”

Dutch front-month gas, Europe’s benchmark, traded 11% higher at €126.65 a megawatt-hour by 11:35 a.m. in Amsterdam. the UK equivalent rose 13%.

Prices had been falling in recent weeks amid mild weather, delaying the start of the heating season, and strong liquefied natural gas flows that helped to fill stocks. But even with the buffer, the crisis is far from over. Futures are trading at about four times the five-year average.

Freeport LNG told buyers it will likely cancel shipments scheduled for November and December as work continues on repairs and regulatory approvals before a restart, according to people with knowledge of the matter.

The plant previously accounted for about 15% of US shipments of the fuel, and the outage extension is set to increase the competition for cargoes in Europe and Asia.

Power prices rose along with the cost of fueling Europe’s gas-fired power stations. German power for next year, a benchmark for the continent, rose as much as 7.4% to €324 per megawatt-hour.

© 2022 Bloomberg

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