The global energy crisis deepened on Tuesday as a further surge 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 jumped by as much as 10 per cent to as high as €251 a megawatt hour, equivalent in energy terms to more than $400 a barrel of oil, as traders raced to secure supplies ahead of the winter. Prices have more than doubled from already extremely elevated levels in June, though they eased marginally later on Tuesday.
The moves have followed Russia restricting supplies in retaliation for western powers backing Ukraine following Moscow’s invasion, with traders fearful of competition for seaborne liquefied natural gas cargoes with Asian utilities before the winter heating season. European politicians have accused Moscow of weaponizing supplies.
With gas prices at more than 10 times their normal level, the possibility of a deep recession has grown, with investors now more downbeat on 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 head even higher as winter approaches, with Berlin discussing the possibility of rationing gas use and governments from London to Madrid preparing to subsidize punishing utility bills.
Further price gains would increase the cost of supporting households, including in the UK where pressure has built for the next prime minister to potentially cap bills even if Russia completely severs supplies.
“European gas prices are still scaling new peaks,” said Bill Farren-Price, a director at energy consultancy Enverus.
“With customers facing a potential complete Russian shut-off before winter even starts, there is little to stop this rally until we see significant demand destruction, probably meaning a deep recession. We’re not there yet.”
US gas markets remain much lower than in Europe thanks to its shale drilling boom over the past 15 years, but rising energy costs have helped trigger decades-high inflation, causing alarm in the White House.
On Tuesday, benchmark US gas rose at one stage by almost 7 percent to more than $9-30 a million British thermal units, close to levels that prevailed before the shale revolution.