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HomeInternationalPrices Rocket 30% as Major Source Nears Shutdown Amid Earthquake Outbreaks

Prices Rocket 30% as Major Source Nears Shutdown Amid Earthquake Outbreaks

It’s a hard shake for Europe’s energy scene as reports circulate that the region’s largest natural gas field is gearing up for permanent closure by October 1. The news sent ripples through the market on Thursday, causing a notable uptick in natural gas prices.

The Groningen field in the Netherlands, while still awaiting official closure confirmation, will likely see its fate sealed in a government cabinet meeting later this month.

This shockwave saw Dutch front-month gas futures, the European benchmark, surge by up to 30% before surrendering most of the increase. It eventually settled at a 10% boost, landing at 42.16 euros per megawatt-hour.

For six decades, the Groningen field has been a significant energy supplier for much of Western Europe. But a series of production-related earthquakes – hundreds since the 1980s – have caused substantial property damage and intensified political calls to pull the plug on Groningen.

Over 3,300 homes in the Groningen area have been razed since 2012 due to earthquake destruction. The promise of compensation was extended to impacted residents earlier this year.

The shuttering of Groningen – initially slated for October of next year – is now on the fast track following a recent no-confidence vote against Prime Minister Mark Rutte. The Dutch government has faced mounting criticism for its perceived nonchalance towards residents’ complaints.

For now, operations at Groningen will remain at minimum levels, allowing for the extraction of an additional 2.8 billion cubic meters of gas before the field’s closure.

While Groningen’s contribution to Europe’s gas market may seem relatively minor, it serves as a critical buffer for the continent’s energy supply. Its closure will not be an absolute full stop; the wells may be reactivated in response to extreme demand.

The news comes on the heels of last year’s intense energy crisis in Europe, when Russia’s shutdown of the Nord Stream gas pipeline sent prices skyrocketing to 300 euros, a retaliation for Western sanctions following Russia’s Ukraine invasion.

Since then, Europe has accumulated natural gas reserves at an unprecedented rate, a process aided by a mild winter. However, this summer’s heatwave is ramping up demand. Coupled with outages in Norwegian gas fields and growing competition for liquefied natural gas, the pressure on prices is on the rise.