Hub blast upsets European gas markets

Italy's government announced on Tuesday that it had declared "the emergency level [for gas] according to the Emergency Plan in force," saying that supply to Italian consumers would however be ensured "by an increased gas supply from national subterranean reserves."

Slovak pipeline operator Eustream also announced in an urgent market message that due to technical failure in the Austrian gas transmission system, the gas transmission at the interconnection point at Baumgarten was "temporarily limited." Several hours later Harald Stindl, the co-head of Gas Connect Austria announced that all transit lines had been put back online and were 100 per cent productive again.

Baumgarten, situated about 50 kilometers (31 miles) northeast of Vienna, transports the equivalent of a tenth of Europe's gas demand. It receives mainly Russian gas via Slovakia and Germany, which is then distributed to Europe via the Austrian natural gas transmission network.

Read more: Nordstream II gas pipeline in deep water

An explosion at the Baumgarten compressor station Tuesday morning injured at least 18 people and left one missing and presumed dead.

The accident followed two days of snow in London and cooler-than-normal temperatures from the Alps to Scandinavia, already causing demand for heating fuels to go up. Arne Bergvik, chief analysts at Swedish utility Jamtkraft, said it was the "worst possible time" for such an explosion because capacity was needed in preparation for the winter in Europe.

"If the weather turns colder and capacity is unavailable, it will absolutely drive up power prices," he told Bloomberg news agency.

More bad market news

The Austrian hub blast is the second incident this week that is rattling European energy markets, after supplies were already pinched by a shutdown of a key North Sea oil pipeline due to a hairline crack.

Read more: North Sea pipeline shutdown impacts supply

Compounding supply problems, the Norwegian network manager on Tuesday cut flows from Troll, Europe's largest offshore gas field, after an unplanned outage that also affected other sites in Norway.

As a result, natural gas and power prices have jumped across Europe. Britain appears to be suffering the most as the country lacks the gas storage sites and web of interconnections that make continental European markets better able to cope with disruption.

Moreover, the UK is more vulnerable than normal this winter because Centrica is closing the nation's biggest storage site after more than 30 years.

Front-month gas in Britain surged as much as 23 percent to 73.7 pence per therm ($9.86 or €8.39 per million British thermal units) on ICE Futures Europe, the highest since December 2013.

Read more: EU to cut gas dependency on Russia with Israel pipeline

But power prices on the continent are also rising, with German power futures for next year climbing to the highest in more than four years, advancing as much as 3.8 percent on the EEX exchange in Leipzig. The same happened in France and the Nordic regions.

Supply problems set to endure

Unsurprisingly, coal prices rose in line with other energy commodities, climbing as much as 2 percent to $90.75 a ton on Tuesday. "For the moment, it will make coal generation a bit more profitable," said Konstantin Lenz, the Berlin-based managing director of Lenz Energy.

Oil company OMV AG, which controls the Baumgarten gas hub, said it would take "days" to restore output via Austria. And Russian gas giant Gazprom announced it "does its best to secure uninterrupted gas supplies" by trying to redistribute gas flows.

Meanwhile, police are investigating the exact circumstances of the blast, which is assumed to be the result of a technical incident, according to Gas Connect Austria.

uhe/aos (Reuters, dpa, AFP)