(Bloomberg) -- A supply crunch a month before the start of the heating season has sent European natural gas and carbon futures to fresh records.

Production outages in the North Sea are exacerbating a supply shortage, just as prices in the U.S. and Asia rally, on concerns Hurricane Ida will disrupt shipments of liquefied natural gas. Meanwhile, carbon futures rallied as higher gas prices continue to push power producers to burn more emissions-intensive coal.

“We are in a record run,” said Tim Partridge, head of energy trading at DB Group Europe. “Some outages were postponed to this year due to Covid-19 restrictions, and those delays are having a retrospect impact now at the worst possible time.”

Europe is running out of time to refill its depleted gas storage sites before the heating season starts in October. Inventories are at their lowest level in more than a decade, after a cold and bitter winter, while supplies from Russia have also been limited. 

Gazprom PJSC said last month it was overwhelmed with record demand both abroad and in Russia. Given the current pace of injections in storage sites, Europe might not be able to fully rebuild its inventories before the upcoming heating season, Gazprom said in a statement Wednesday. 

Benchmark European gas futures traded in the Netherlands jumped as much as 5.2% to 52.95 euros a megawatt-hour, an all-time high. Front-month gas in the U.K. soared as much as 5.3% to 134.5 pence a therm on ICE Futures Europe before later retreating.

EUROPE GAS OUTAGES: Flows Cut At U.K. Perenco Bacton, Cygnus

Outages in the North Sea have been ramping up as gas infrastructure operators are finally able to carry out maintenance after a year of Covid-related restrictions. The Perenco Bacton gas terminal and the Cygnus field, both in the U.K., were among facilities halted due to unplanned maintenance. In Norway, Europe’s biggest gas supplier after Russia, capacity at a number of sites will be cut in stages over the next few days.

Meanwhile, higher gas prices are pushing up the cost of power and emissions across Europe. EU carbon permits surged to a record of 61.90 euros a metric ton Wednesday, before later declining.

Burning coal is becoming an increasingly profitable fuel to produce power, compared to gas, for the fourth quarter of this year.

 

“Tightness across the energy complex, and especially gas, continues to lend support to carbon prices,” Redshaw Advisors wrote in a report on Tuesday, when carbon exceed 60 euros for the first time.

The bulls are set to keep driving European energy markets until at least the first half of September, according to Partridge. “At the end of the month, the market will be looking at where we are in terms of storage levels and that will set the direction.”

Meanwhile, Citigroup Inc. reckons European and Asian gas prices, as well as carbon, are being “skewed to the upside,” and will be “vulnerable to spikes in the weeks ahead,” the bank wrote in a report on Wednesday.

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