European natural gas and power prices soared yesterday on concerns that France’s nuclear plants will curb production over the upcoming winter months, a period when electricity demand is seasonally strong.
The national electric utility had informed that its nuclear plants might contain substandard parts related to manufacturing hiccups at its key supplier.
Additional tailwinds came from Netherland’s decision to retire its legacy Groningen gas field earlier than expected, and from a court ruling implying less gas flow from Russia via Poland.
This cocktail of bullish news took market participants by surprise and short covering of futures positions likely added to the surge in prices. However, the impact remains elusive, particularly the consequences for France’s nuclear power plants. To date, there is no indication if the parts will be replaced during the usual spring and autumn maintenance periods or if unscheduled work is needed.
Meanwhile, both Netherland’s early field retirement as well as reduced Russian flows through Poland are unlikely to bear supply risks for Europe. Europe’s storage is overly full, liquefied natural gas imports have become highly attractive at today’s prices, and early next year, the second Russian pipeline stream through the Baltic Sea will likely enter service. We stick to our Neutral view and sense some overreaction in the market.
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