By Leman Zeynalova – Trend:

Gas prices could remain high until the end of the winter heating season, given low levels of natural gas in European storage facilities, however, we expect prices to moderate once seasonal demand reduces, Trend reports with reference to Fitch Ratings.

“Although we expect higher gas prices to increase regulatory risks, the rated utilities’ diversification by jurisdiction and business line, including electricity production and distribution networks, cushions the impact. The unfolding situation in the European gas market may further accelerate the energy transition in the utility sector towards renewables,” said the rating agency.

Fitch notes that fertiliser producers have been severely affected by rising gas prices.

“Gas is a key input in ammonia production, which is further used in urea and DAP production. Several ammonia plants in Europe have cut their output or have temporarily shut down operations. Larger Fitch-rated fertiliser producers with a global presence are able to continue production in other regions or source ammonia from third parties, limiting the impact. Producers may also seek to increase fertiliser prices to pass costs onto consumers. Agriculture and food producers are affected by challenges in the fertiliser sector,” said the agency.

Agribusinesses may face shortages in fertiliser supplies and increased prices, most likely increasing their costs in the next season’s harvest, according to Fitch.

“However, meat processors and carbonated drinks manufacturers, particularly in the UK, already face disruptions due to CO2 shortages, which is a by-product of ammonia manufacturing and is used in meat and fizzy drinks production. Geographically diversified food and beverages producers are better positioned to mitigate such shortages.

The record-high prices in Europe are driven by increased demand (due to the wider economic recovery and weather-related factors), competition with Asia for LNG, and a limited supply response from Gazprom, Europe’s largest supplier, providing about a third of Europe’s gas. Prices have also risen due to market fears of a gas deficit during the winter heating season due to low European storage utilisation compared to previous years,” said the rating agency.