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Gas markets whipsaw after Russia offers to stabilise energy prices
6 October 2021
Lede: UK gas contracts for November delivery soar almost 40% before falling back
after Putin's comments
Vladimir Putin hints that Russia's state-backed monopoly pipeline exporter,
Gazprom, may increase gas supplies © AP
David Sheppard and Neil Hume in London, Max Seddon in Moscow and Derek Brower in
Gas markets swung sharply on Wednesday after Russia's president Vladimir Putin
said his country was prepared to stabilise the soaring global energy prices that
are threatening to curb industrial activity and sharply raise inflation.
UK and European natural gas prices shot higher early in the day to trade at
close to 10 times their level from the beginning of the year. But prices
abruptly reversed course hours later when Putin hinted that Russia's
state-backed monopoly pipeline exporter, Gazprom, may increase supplies to help
Europe avoid a full-blown energy crisis.
"Let's think through possibly increasing supply in the market, only we need to
do it carefully. Settle with Gazprom and talk it over," Putin said. "This
speculative craze doesn't do us any good."
Gas traders say one of the drivers of the rally in prices is that Russia is
limiting its European gas supplies to the levels in long-term contracts, and has
let Gazprom's storage facilities in the continent fall to very low levels.
Putin said Gazprom was exceeding its contractual obligations for gas supplies
through Ukraine this year.
His remarks appeared aimed at staving off criticism from Europe that Russia is
holding back supplies as it awaits approval for the controversial new Nord
Stream 2 pipeline, which bypasses Ukraine to send gas to Germany. That project
edged closer to going live on Wednesday after a judicial opinion in the EU.
UK gas contracts for November delivery surged almost 40 per cent as trading
opened to reach more than £4 per therm, having started the year below 50p. But
after Putin's intervention, they ended the day down 9 per cent, at £2.71.
The gas industry was shaken by the swings in the price. Tom Marzec-Manser at
ICIS, a consultancy, said it was "the most volatile and unpredictable day that
many in the industry will ever witness".
Jennifer Granholm, the US secretary of energy, told the FT the US was
"carefully" watching Russia's role in the European gas crisis and trying to find
ways to help, including assessing whether Gazprom was manipulating the
market. "You don't want to see energy made into a weapon," she said.
Ukraine and other eastern European countries have accused Russia of trying to
"weaponise" gas supplies.
Poland's climate minister Adam Guibourgé-Czetwertyński called on the European
Commission to investigate what he said were "clear signs of market manipulation"
from Gazprom. Speaking at a meeting of EU ministers on Wednesday, the minister
said: "We have to be assertive in the face of Russian coercion."
Kremlin spokesman Dmitry Peskov said there was "absolutely no Russian role in
what is happening on the gas market". Angela Merkel appeared to lend support to
Moscow, saying it was "not the case" that there were orders for gas that Russia
had not supplied. "Russia can only deliver gas on the basis of contractual
obligations," Germany's chancellor said. "That's why we should ask the question:
was enough gas ordered, or is the high price at the moment maybe the reason for
not ordering so much?"
Record natural gas prices are one symptom of a global battle to secure fuel
supplies after demand rebounded rapidly from the depths of the pandemic. The
price of coal, which is used to generate electricity and for heating, has also
surpassed its all-time peak set in 2008.
"An energy crisis is unfolding with winter in the northern hemisphere still to
begin," said Stephen Brennock of PVM, an energy brokerage in London.
Domestic production of gas in Europe has fallen sharply, while demand in Asia
has risen as countries increasingly seek alternatives to highly polluting coal,
creating a bidding war for cargoes of liquefied natural gas.
Rising energy prices are fuelling concerns about inflation, which has dented
government bond prices, particularly in the UK.
The UK is seen as more vulnerable to record gas prices than some countries in
Europe because it has very limited storage capacity, leaving it reliant on a
near just-in-time system of domestic production and imports from pipelines and
The vast majority of UK homes are heated with natural gas, and the country has
shut more of its coal-fired power stations while adding renewables such as wind
farms. On still days when wind power generation is lower, gas can make up more
than 50 per cent of all electricity generation.
Europe is also suffering from very high electricity prices as a result of the
surge in energy costs. The EU said on Wednesday it would review the region's
power market and consider changes to regulation.
French building materials company Saint-Gobain underscored the corporate impact
on Wednesday when it said it was expecting energy and raw material cost
inflation of about €1.5bn in 2021, up from its previous estimate of €1.1bn.
Additional reporting by Mehreen Khan
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