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Europe's gas prices soar as Austria blast adds to supply fears

Italy declares a state of emergency for energy amid concern in Europe that winter gas supplies may be disrupted.

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Europe's gas prices soar as Austria blast adds to supply fears

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Gas and power prices across Europe soared on Tuesday following an explosion and fire at Austria’s main gas distribution point, that killed one person and injured more than 20.

The disaster at Baumgarten further threatened supplies already feeling the squeeze from the closure of a pipeline in the North Sea on Tuesday. The UK’s Forties Pipeline System (FPS) was shut down on Monday for emergency repairs, as bitterly cold weather swept the country.

Brent crude futures, the global benchmark for oil prices, rose above 65 dollars (55.4 euros) a barrel – their highest since mid-2015. There are fears that prices could remain high throughout the winter, if supply problems and low temperatures continue in Europe, increasing demand for heating fuel.

The Baumgarten site, near Austria’s border with Slovakia, is a major distribution point, taking gas from as far away as Russia and pumping it along several pipelines towards neighbours including Germany and Italy, and elsewhere in Europe.

Italian emergency

Italy, the largest recipient of gas from the Austrian plant, declared a state of emergency for gas as its managers declared that it would take several days to restore output. A state of emergency gives Rome the right to invoke extraordinary measures, such as allowing coal and oil power plants to operate a full blast.

The country’s industry minister said it was faced with a “serious” energy supply problem, while some energy prices surged by almost 100 percent. However, Claudio Dascalzi - the CEO of Italy’s largest gas company Eni SpA - said there was “no alarm among operators” and the problem could be balanced out even if it lasted for a few weeks.

Italy’s gas transport group Snam was also optimistic of a return to normal soon. “Supplies could resume today if the first indications on the absence of damage to transport infrastructure are confirmed,” it said.

The Slovak pipeline operator, Eustream, said Slovaia’s main gas supply route to Austria was suspended after the fire.

Ukraine’s gas transport monopoly Ukrtransagaz said the Baumgarten blast would temporarily reduce the transit of gas via Ukraine, slightly affecting gas supplies from Europe to Ukraine. The company also said Ukraine would face an “insignificant decrease” in gas supply from Hungary due to the blast, adding that the fall would be offset by underground storage reserves.

The major Slovakian supply route to Ukraine is unaffected, it said. Ukraine’s state oil and gas firm said earlier this year that almost all of its imported gas came from Slovakia. Kyiv has switched to buying supplies from EU neighbours and away from Russia, in a bid to boost its independence from Moscow following the annexation of Crimea in 2014.

British vulnerability

In Britain, same-day gas prices surged by around 35-40 percent to their highest level for four years. The country is more vulnerable to disruptions in supply than continental European countries, as it lacks their network of interconnections. The UK also lacks gas storage sites; its biggest site is being closed this year after three decades of service.

The outage in the North Sea on Monday affected both oil and gas flows. Some estimates put the shortfall of supply from the Forties shutdown at about 10 percent of average winter demand. Buyers were expected to look for alternative supplies, from the Asia-Pacific region, the Middle East and also the US, according to some analysts.

Supply problems were compounded on Tuesday when Norway – the UK’s biggest foreign supplier - cut flows from Troll, Europe’s largest offshore gas field, after a power outage that also affected other sites.

As gas prices across Europe rose sharply, Russia’s Gazprom Export said it was trying to avoid disruption to supplies by redirecting gas flows.