EU Energy Panic Goes Full GameStop As Russia Tensions Rise

At a certain point, you run out of creative hyperbole.

Such is the case with European power and gas prices, which continued a relentless ascent Monday amid renewed concerns over the Nord Stream. Flows through the link will “pause” again later this month, ostensibly for maintenance on the sole functioning gas turbine at Portovaya’s compressor station.

Flows were already running at just 20% of capacity. Just as scheduled maintenance in July stoked concerns that the Kremlin might find an excuse to curtail shipments altogether, the latest planned stoppage fanned fears of a worst-case scenario.

Power prices hit records across Europe last week even before Gazprom’s late Friday announcement, which was reflected in Monday’s panic moves. The visuals elude the dictionary. And the thesaurus. The figure (below) is a good example.

I’m not sure what the correct adjective is — “GameStop” maybe?

As I put digital pen to digital page, I quickly noticed I wasn’t alone in being bereft. “We’ve run out of adjectives to describe the pace of this price surge,” Timera Energy wrote, marveling at the scope of Europe’s “parallel gas and power crisis.”

One person who’s never short on adjectives is Nomura’s Charlie McElligott. When necessary, he’ll combine words to create new adjectives. Monday’s moves across the European energy complex were “new horror-highs,” he said, noting that German 1-year forward baseload (depicted above) is +72% in a week and a half, +129% since the start July and +514% off the YTD low.”

Although Germany has had some success filling storage on schedule, the situation is extremely urgent. Everything’s on the table — coal, nuclear, everything. It’s not much better in France, where Emmanuel Macron last week characterized the increasingly onerous circumstances as the price the French people must pay to protect and preserve “our freedom and our values.”

If it keeps going like this, Europeans might avail themselves of a new source of heat: The euro, which they can pile up on the hearth.

The common currency hit a new two-decade low on Monday, below parity (figure above).

“If [gas] prices stay at current levels for long enough, the impact on Europe’s terms of trade will be devastating,” SocGen’s Kit Juckes wrote. “The longer the strain in the natural gas market persists, the more it will be a European problem than a global problem — or rather, more of a problem for [the euro] than for other regions’ currencies,” he said.

The figure (below) is just another way to visualize the same situation. It shows the Dutch contract, the European benchmark, with Nord Stream flows from Russia to Germany.

Benchmark prices are 15 times higher than the average for this time of the year, Bloomberg noted on Monday.

This is a disaster for the ECB. They have to keep hiking rates. And this isn’t a scenario where it’s all about optics. To be sure, a “one and done” effort to get rates out of negative territory would appear totally derelict in the face of soaring inflation, but the greater risk would be from rate differentials which, were they to move against the euro as other developed markets kept tightening, could undermine the currency further, risking pass-through effects for prices.

Of course, hiking rates into what (and forgive me for the fatalistic assessment) is now a guaranteed recession, is suboptimal too. Just ask the Bank of England.

I suppose I’m compelled to mention that tensions between Moscow and Kyiv are now likely to worsen, and with them, Europe’s energy crisis. The FSB on Monday accused a Ukrainian woman of orchestrating the killing of Daria Dugina over the weekend. Mykhailo Podolyak, an adviser to Volodymyr Zelensky, called the claim “propaganda from a fantasy world.”

In a letter to Aleksandr Dugin, Vladimir Putin described Dugina (like her father an ultranationalist, who, just a day before her death, reportedly suggested heinous acts committed by Russian troops in Bucha were a Western fabrication) as a “bright, talented person with a real Russian heart.” The car bombing that killed her, Putin said, was a “vile, cruel crime.”

Estonia, the FSB asserted, is harboring her killer. As the Times wrote, the claim “was likely to further inflame tensions with the Baltic nation, which has been among Europe’s leading critics of the Kremlin.”