Energy

Euro hits lowest level in two decades as gas prices soar

The euro slumped on Monday to its lowest level since 2002 as a fresh surge in gas prices heightened worries over the region’s economy.

Europe’s common currency slid as much as 1 per cent to as low as $0.9934 in afternoon action, leaving it as one of the worst performers among major currencies on the day.

The fall came as the benchmark TTF gas price in Europe rallied more than 10 per cent to a high of €292.50 per megawatt hour ($85 per million British thermal units), before easing slightly to €278, leaving it on course to notch up its highest closing price on record. In the UK, gas prices for next-day delivery surged as much as 33 per cent to £4.80 a therm ($57 per million BTU).

The rise in European TTF prices to more than 14 times their average of the past decade may crimp industrial production in mainland Europe and push the region into recession, traders and economists have said. Widespread fears of shortages this winter have led gas users to try to lock in supplies, pushing up prices even as fears of a severe economic slowdown grow.

Line chart of $ per € showing Euro slumps to two-decade low

The euro initially breached parity with the US dollar in July, but had rebounded. The latest fall reflects concerns about the energy crisis and a broad rise in the dollar turbocharged by expectations the US Federal Reserve will raise interest rates much more aggressively than the European Central Bank.

“The end of summer sees the euro back under pressure, partly because the dollar is [rising] and partly because the Damoclean sword hanging over the European economy isn’t going away,” said Kit Juckes, a strategist at Société Générale.

The latest surge in gas prices had been triggered by an announcement by Gazprom, Russia’s state-backed gas monopoly, late on Friday that it was planning maintenance on the Nord Stream 1 pipeline to Germany early next month, traders said.

Gazprom has already slashed capacity on the line to just 20 per cent of the norm, triggering a more than doubling in gas prices in mainland Europe since June, with European officials accusing Moscow of “weaponising” supplies following the invasion of Ukraine.

There are fears that any maintenance could be used as a pretext for a prolonged shutdown of the line, with Moscow having blamed the capacity reduction on western sanctions interrupting its normal maintenance schedule.

“There are some in the market who expect flows on Nord Stream 1 to not return after the September maintenance,” said James Waddell at Energy Aspects.

“We need to see significant additional demand destruction in that scenario to guarantee enough supplies for priority consumers like households and essential services, so without further curtailments in consumption being mandated by governments we risk seeing increasingly extreme prices.”

Given the elevated level of gas prices, a 10 per cent daily rise now creates an enormous change in the absolute level of gas prices. It sets a gloomy tone ahead of winter as many governments prepare to shield their populations from the worst of the gas shock.

Gas prices in Europe were also responding to a surge in the price of liquefied natural gas in Asia, where state-backed utilities are starting purchases ahead of the winter. Europe needs to compete with large Asia LNG importers such as China, Japan and South Korea to secure the limited amount of LNG cargoes not tied up under long-term supply agreements.

LNG prices in Asia have risen above $57 per million British thermal unit, with some cargoes being offered at about $60 per million BTU.

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