Europe's Gas Flows to Resume After Explosion Rattles Markets
(Bloomberg) -- Natural gas flows were set to recover in Europe after an explosion at an Austrian hub threatened supplies already pinched by a closed pipeline in the North Sea and a cold snap across the continent.
Oil company OMV AG, which controls the Baumgarten gas hub, managed to divert international transit pipelines so that flows to Italy, Germany and Hungary can resume before midnight local time, according to an emailed statement.
“We managed to technically isolate the affected area,” Stefan Wagenhofer, managing director of OMV unit Gas Connect Austria GmbH, told ORF television. This allows the company to divert international flows and “resume transit within hours.”
Natural gas and power prices earlier jumped in Europe after the explosion, and Brent crude oil futures rose above $65 a barrel for the first time since June 2015, extending their premium over the U.S. benchmark. Britain, which is struggling to absorb the impact of a crack that shut down a key North Sea pipeline network, saw some of the biggest increases.
A blast about 9 a.m. at the Baumgarten compressor station killed at least one person and injured at least 21 people, interrupting flows at one of the main points where Russian natural gas enters Europe. That followed two days of snow in London and cooler-than-normal temperatures spread from the Alps to Scandinavia, which is raising demand for heating fuels.
“The European gas market seems to be going through a perfect storm,” Massimo Di-Odoardo, an analyst at Wood Mackenzie Ltd. in London, said by email.
Britain lacks the gas storage sites and web of interconnections that make most continental European markets better able to cope with disruption. Reduced pipeline gas flows may increase competition with Asia for liquefied natural gas cargoes this winter, according to WoodMac.
Front-month gas in Britain jumped as much as 23 percent to 73.7 pence a therm ($9.86 a million British thermal units) on ICE Futures Europe, the highest since December 2013. The comparable U.K. power contract rose as much as 15 percent, according to broker data compiled by Bloomberg. Same-day gas soared as much as 46 percent.
Baumgarten, about 50 kilometers (31 miles) northeast of Vienna, transports the equivalent of a 10th of Europe’s gas demand.
Flows on the Trans Austria Gas pipeline, which carries Russian gas to Italy, are set to resume by midnight, Marco Alvera, the chief executive officer of gas transmission company Snam SpA, said in an emailed statement.
Italy, which relies on Russian flows for 30 percent of its demand, earlier declared a state of emergency for gas. OMV had initially said it would take “days” to fully restore the facility, roiling power and gas markets across the continent.
A separate outage in the North Sea announced Monday affected both oil and gas flows. It will support prices for some types of oil from the Asia-Pacific region and the Middle East as buyers look for alternatives to North Sea supply, according to McKinsey Energy Insights. The link in the Forties system offshore the U.K. is critical because flows through it make up the single largest constituent part of so-called Dated Brent crude.
German power futures for next year climbed to the highest in more than four years, advancing as much as 3.1 percent on the EEX exchange in Leipzig. Coal rose as much as 2 percent to $90.75 a ton, the highest for a front-year contract since May 2013 on ICE Futures Europe. Power prices also jumped in France and the Nordic region.
Gas flows into the U.K. surged to a four-year high overnight as shippers responded to higher prices. LNG tankers may be able to fill some of the gap, but those vessels take days or even weeks to arrive, said WoodMac’s Di-Odoardo. Europe may have to compete with Asia, the biggest buyer of LNG, this winter, he said.
The market was already responding to a halt in production at some North Sea gas fields after a shutdown of the North Sea Forties pipeline network. That boosted prices on Monday, when rare snow fell across the U.K., forcing flights to be canceled in London and Birmingham. WoodMac estimates the shortfall of supply from the Forties outage at about 10 percent of average winter demand.
Compounding supply problems, the Norwegian network manager on Tuesday cut flows from Troll, Europe’s largest offshore gas field, after an unplanned power outage that also affected other sites in Norway, the U.K.’s biggest foreign supplier. Gas flows from Belgium and the Netherlands also dipped from near-record levels after the explosion in Austria, as a constraint occurred on the U.K. side of the BBL pipeline that delivers Dutch gas.
Baumgarten is Austria’s largest gas reception point and main distribution hub for imports from countries including Russia, Europe’s biggest gas supplier. Moscow-based Gazprom PJSC said it “is working on redistribution of gas flows and does its best to secure uninterrupted gas supplies to the clients on this transport direction.”
Police are investigating the exact circumstances of the blast, which is assumed to be the result of a technical incident, Gas Connect said on its website.
The U.K. is more vulnerable than normal this winter because Centrica Plc is closing the nation’s biggest storage site after more than 30 years. The Rough facility was able to meet as much as 10 percent of peak winter demand but that is now much reduced as it pumps out its last remaining fuel.
It takes about two weeks to bring LNG from Qatar, the U.K.’s biggest supplier of the super-chilled fuel. Only one tanker, the Bu Samra, is confirmed as arriving in the U.K. this month. The first tanker from Russia’s Arctic plant Yamal LNG may also head to Britain and would arrive in about five days, according to shipping website sea-distances.
The supply crisis in the U.K. may lead to more LNG imports from the U.S.’s Sabine Pass plant in Louisiana, said Zach Allen, president of vessel-tracking company Pan Eurasian Enterprises. The addition of the Cove Point facility in Maryland would cut shipping times to Europe, he said. The Dominion Energy Inc.’s facility is preparing to start production.
“The good news is Europe will not "freeze in the dark," the bad news is keeping the lights and the heat on may not be pretty,” Allen said.
--With assistance from Jonathan Tirone Jesper Starn Rachel Morison Alessandra Migliaccio Anna Shiryaevskaya Tommaso Ebhardt and Katharina Rosskopf
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