The global energy crisis deepened on Wednesday as a further rise in natural gas prices in Europe and the US threatened to push some of the world’s largest economies into recession.
Gas markets in Europe rose 6 percent on Wednesday to €236 per megawatt hour, bringing the week’s gains to 14 percent so far. The latter price was equivalent in energy terms to nearly $400 a barrel of oil as traders rushed to secure supplies for the winter. Prices have more than doubled since June from already extremely high levels.
The measures followed Russia’s cut in supplies in retaliation for Western powers backing Ukraine after its invasion of Moscow, with traders fearing competition from Asian utilities ahead of the winter heating season. European politicians have accused Moscow of arming supplies.
With gas prices more than ten times higher than normal levels, the likelihood of a deep recession has increased, with investors now more depressed about the German economy than at any time since the eurozone debt crisis a decade ago.
European gas prices are expected to remain near record levels or even climb higher as winter approaches, with Berlin discussing the possibility of rationing gas consumption and governments from London to Madrid preparing to subsidize punitive energy bills.
Further price hikes would raise the cost of supporting households, including in the UK, where pressure has mounted for the next prime minister to potentially cut bills even if Russia cuts supplies completely.
“European gas prices are still reaching new peaks,” said Bill Farren-Price, director at energy consultancy Enverus.
“With customers facing a possible full Russian shutdown before winter even sets in, there is little to stop this rally until we see significant demand destruction, likely meaning a deep recession. We’re not there yet.”
US gas markets remain much lower than in Europe thanks to the shale drilling boom over the past 15 years, but rising energy costs have caused inflation to rise for decades, raising alarms in the White House.
Benchmark US gas was up more than 7 percent for the week Wednesday morning to $9.40 per million UK thermal units — close to pre-shale levels.
Analysts said further increases in the coming months can be expected on both continents as demand mounts, winter sets in and governments rush to replace Russian energy in Europe.
In the UK, the benchmark contract for delivery in September is up nearly 17 percent for the week to just under £5.15 per therm.
In mainland Europe, the benchmark gas price is the equivalent of nearly $70 per million Btu, with record prices trickling down to electricity markets where prices have risen to six times a year ago.
On Tuesday, the metals company Nyrstar, which is controlled by trading house Trafigura, said it would indefinitely halt production at one of Europe’s largest zinc smelters, making it the latest industrial victim of the energy crisis.
The US price hike followed data pointing to a recent slowdown in production of new shale oil and gas resources due to reduced drilling, pipeline bottlenecks and rising production costs, said Peter Rosenthal of consultancy Energy Aspects.
“It’s a fundamental shift,” said Stephen Schork, editor of the energy market newsletter The Schork Report. More than a decade of cheap U.S. natural gas “is now a bygone era,” he added.
US gas prices have risen as underground supplies have fallen to 12 percent below average, in part because power plants burn more fuel to meet electricity demand during a hotter-than-normal summer.
Prices have risen even as the Freeport LNG export plant in Texas, one of the country’s largest gas consumers, has been temporarily shut down after an explosion.
The reopening of the free port in October would make more supplies available to Europe, potentially lowering prices across the Atlantic, but increasing demand in the US.
Additional reporting by Harry Dempsey in London and Martin Arnold in Frankfurt