European gas futures climb to fresh highs as Russian flows dip

European natural gas futures surged to record highs on Monday as the amount of Russian gas flowing into Europe through a key entry point dipped, crimping supplies in an already tight market.

With European stockpiles about 20% below the seasonal average just weeks before the heating season, traders are focused on Europe-bound supply routes for Russian gas and winter demand, said Julien Hoarau, head of Paris-based consultant Engie EnergyScan. Europe will face a very tight winter and an extreme weather event could push prices over 100 euros per megawatt-hour, he said.

Gas flows at the Mallnow station in Germany, which handles Russian fuel from a major transit pipeline, dropped to its lowest in two weeks. Volumes through this route started falling at the end of July and plunged further after a fire at a Gazprom facility in Russia in early August.

Prices also rose as the cost of carbon permits under the European Union’s emissions-trading system surged to a new high, raising the attractiveness of gas as a cleaner-burning fuel in power generation.

Demand in Asia is expected to continue drawing cargoes of liquefied natural gas away from Europe. Industrial production in China and India is putting considerable demands on power generation, much of which is being produced from coal but gas has also been affected, Citigroup analysts said in a note.

Front-month Dutch gas futures gained 3.4% on Monday to 53.25 euros a megawatt-hour by 9:19 a.m. in London. Front-month gas in the U.K. rose as much as 3.5% to a record 135 pence a therm on ICE Futures Europe.

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