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European gas prices soar amid Russia pipeline shutdown

September 5, 2022

Gas prices in Europe jumped over 30% while the Euro sunk below $0.99 for the first time since December 2002. The fall comes after Russia announced it would halt gas flows on the Nord Stream I pipeline to Germany.

Hand shown turning a thermostat dial
Russia's move to indefinitely halt flows on the Nord Stream 1 pipeline has caused European gas prices to spikeImage: MiS/imago images

European gas prices shot up in early trading on Monday as markets reeled from Russia's move to halt deliveries on a major pipeline.

The European benchmark gas contract soared over 30% at the start of trading.

Meanwhile, the Europe-wide STOXX 600 index fell 1.7% in the first hour of trading while Germany's DAX index sank by 3.1%.

The latest market upheaval came after Russian gas giant Gazprom said on Friday that the Nord Stream 1 pipeline would remain shut indefinitely. Nord Stream 1 was previously slated to reopen over the weekend.

Gazprom said there were oil leaks in a turbine, and the pipeline would remain closed until it was repaired. The pipeline delivered gas from Russia to Germany via the Baltic Sea.

Euro falls to 20-year low against US dollar

The Euro also took a hit on Monday, plunging to a 20-year low compared to the US dollar.

At 0535 GMT on Monday, the Euro fell to 0.9884 US dollars, its lowest since December 2002. The sterling hit a new 2.5 year low at $1.14445. 

"We can't have any confidence in the outlook for natural gas in Europe, and this is a negative for the euro. It heavily depends on Putin," Osamu Takashima, Citigroup Global Markets' chief foreign exchange strategist told Reuters news agency. 

The Eurozone's currency has weakened against the dollar since the beginning of 2022, affected by economic uncertainty amid Russia’s invasion of Ukraine.  

On Monday, the yuan fell to a two-year low at 6.9543 per dollar.

Kremlin blames Europe for Nord Stream 1 shutdown

After Western sanctions following the war in Ukraine, the Kremlin has reduced or halted energy supplies to Europe, causing prices to soar. 

"Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain," Kremlin spokesman Dmitry Peskov said on Monday. 

"There are no other reasons that lead to problems with supplies," he added.

Peskov said that if sanctions were lifted, the repair work on the Nord Stream 1 pipeline could be completed easily and gas flows could resume.

Germany and other EU member-states have accused Moscow of using gas as a political weapon amid the war in Ukraine.

On Friday, EU Council President Charles Michel said Russia's move was "sadly no surprise."

"Use of gas as a weapon will not change the resolve of the EU. We will accelerate our path towards energy independence. Our duty is to protect our citizens and support the freedom of Ukraine," he tweeted.

lo, tg/ rs (AFP, Reuters)