European natural gas prices soar 17% after Russia says it will slash supplies to the continent, driving fears of a deep recession

European governments have accused Vladimir Putin of using natural gas as an economic weapon.

Sputnik/Mikhail Metzel/Kremlin via REUTERS

• Natural gas prices have jumped 17% over the last two days after Russia's Gazprom said it would slash supplies.
• Gazprom will cut supplies through the Nord Stream 1 pipeline to 20% of capacity, having already cut them to 40% of normal levels.
• Economists said the move will drive Europe's fragile economy into a recession, with Deutsche Bank expecting the downturn to start this year.

European natural gas prices have shot 17% higher over the last two days after Russia said it will slash supplies of the fossil fuel to the continent through the Nord Stream 1 pipeline.

Dutch TTF natural gas futures for August — the benchmark European price — rose sharply on Monday after Russia's Gazprom announced the move.

It jumped again on Tuesday to around 188 euros ($191.50) per megawatt hour, according to data from the ICE exchange. That was more than 17% above Friday's closing price of around 160 euros and the highest since early March.

European natural gas prices have now risen for four consecutive days and were up more than 700% from a year earlier on Tuesday.

The cuts to supplies and the jump in prices are driving fears that Europe could soon tumble into a recession, as high energy prices cause people and businesses to slash spending.

Economists at Credit Suisse on Tuesday slashed their growth predictions for the eurozone, saying they now expect the bloc's gross domestic product to shrink in 2023.

The bank's economists, led by Veronika Roharova, said they expect "the largest contractions in Germany and Italy – i.e. countries with large manufacturing sectors that are highly reliant on Russian gas."

State-owned Russian energy company Gazprom said on Monday it would cut natural gas flows through Nord Stream 1 to 20% of capacity on Wednesday, having already slashed shipments to 40% of normal amounts.

Ukrainian President Volodymyr Zelenskyy on Monday accused Russia of waging a "gas war" against Europe after Russia said it would further restrict gas supply to the continent.

Gazprom has blamed sanctions for stymieing the supply of crucial turbines and said it needs to carry out maintenance work. However, European leaders have accused Russia of using natural gas as a political weapon.

US shipments of super-cooled liquefied natural gas to Europe have soared this year, as consumers in the region have scrambled to snap up alternative sources of supply. The United States became the world's biggest exporter of LNG in the first half of 2022, according to the Energy Information Administration.

Tensions in Europe have risen to levels not seen since the Cold War after Russian President Vladimir Putin invaded Ukraine in late February.

Peter Sidorov, economist at Deutsche Bank, told clients Gazprom's cuts were "consistent with our baseline of an 'on-off' supply scenario for Russian gas." He said the eurozone would likely suffer a mild recession in the second half of 2022.

Gazprom said it is further reducing supplies because of maintenance issues with a turbine that is crucial to the operation of the NS1 pipeline, which sends gas from Russia into Germany.

Goldman Sachs analysts, led by Samantha Dart, said they expect flows to pick back up to 40% of normal levels once another turbine — which is currently caught up in an international disagreement over sanctions — has been restored.

However, they said that "Russian supply uncertainty remains high."

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