Wholesale Natural Gas Costs Hit Highest Levels Since December 2023 Across Europe, Oil Prices Drop
Wholesale costs for natural gas have soared to their highest levels across Europe since December 2023, raising concerns of a potential spike in energy bills for consumers. However, there may be some relief for drivers in the form of a plunge in oil prices.
On Monday, Brent crude fell by over 3%, dropping to just below $78 a barrel. This was largely due to market speculation that major oil-producing countries within the Opec+ group, including Russia and Saudi Arabia, may increase their exports later this year. As a result, the international benchmark reached its lowest trading levels since February.
While the price of oil decreased, natural gas costs went in the opposite direction following news that important Norwegian export operations had been shut down due to a cracked pipe. The damage was discovered on the Sleipner Riser platform, prompting the halt of wider energy infrastructure, including the Nyhamna processing plant that exports gas to the UK, according to pipeline operator Gassco.
Alfred Hansen, the company’s head of pipeline system operations, stated to Reuters that “this has big consequences from a supply perspective.” He also noted that while there are options for bypassing Sleipner, they are time-consuming and not without risk. There is currently no estimate on how long the fracture may take to repair.
The shutdowns have affected deliveries to the Easington terminal off the Humber estuary, one of six major import and storage facilities in the UK. Data from the London Stock Exchange showed a 10% increase in the UK contract for July delivery, reaching 90p per therm in response to the unplanned shutdown announcement. This is the highest price seen since December 2023. Similar trends were seen in the main European front-month contract, which also reached a 2024 high as deliveries to countries such as Germany were impacted.
Norway became Europe’s primary gas supplier in 2022, as Russia faced international backlash for its invasion of Ukraine. Prices have been volatile in recent weeks due to maintenance schedules in Norway coinciding with attacks on Russian infrastructure.
While the immediate impact of the shutdowns on prices has been significant, it could have been even worse if it had occurred during the winter months when demand is higher. However, if the damage to imports is prolonged, it could have an effect on energy costs for households and businesses heading into the winter of 2024/2025. This impact would not be felt until at least September, as the UK regulator Ofgem recently announced that average annual bills under the energy price cap would decrease by over £100 from July to September. Though this level is locked in, there may be limited increases expected for the two following colder, three-month periods.
A spokesperson from Gassco stated that they are “working with a plan for repairs and with a plan for compensatory measures to deliver the highest possible volume to Europe.”
