Europe Markets: The surge in European gas prices is tied to the Asian shortfall in coal supply, strategist says

As the prices for key U.K. and Dutch natural-gas contracts surge, the culprit is the shortfall in coal supply in Asia, one strategist says.

On Tuesday, Dutch TTF gas futures jumped 11%, and the U.K. natgas contract

jumped 12%. The Dutch contract traded at €85 per megawatt, up from €20 as recently as April.

Tom Price, head of commodities strategy at Liberum Capacity, says even as Europe and the U.K. has reduced its coal power generation capability over the last 30 years, they’re still very much tied to coal markets worldwide, because power generators globally switch between gas and coal.

When the Chinese economy emerged from lockdown, there was a 10% jump in power demand, resulting in power requirements well above pre-virus levels. A subsequent rise in Asian seaborne coal prices prompted power generators to switch to gas.

At the same time, provincial governments in China are forcing coal miners to adhere to new safety procedures, which is capping output, he says, as China also is maintaining a ban on Australian coal imports. Other supply issues include Indonesia’s unusually high rainfall and South Africa’s rail and port issues.

Back in Europe, there’s not just a lack of coal-based alternatives, but also nuclear, due to Germany and Belgium phasing out that source. That makes Continental Europe reliant on imports from Russia and the U.K. reliant on Norwegian imports.

Meanwhile, bonds were on the back foot throughout Europe, with the 10-year German bund

rising to -0.196% from -0.219%, and the 10-year U.K. gilt

rising to 0.899% from 0.863%.

The U.S. 10-year yield

rose above 1.5%, pressuring the Nasdaq 100


The Stoxx Europe 600

stock-market index slumped 1.1%, as tech stocks including chip-equipment maker ASML Holding

and computer peripherals maker Logitech International

dropped on the bond yield spike.

This post was originally published on Market Watch

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