Norway draws up plans to slash energy supplies to Europe, driving power prices to record highs

• Norway has drawn up plans to slash electricity exports to Europe as its reservoirs run low.
• Any cuts would be a major blow to the continent as it grapples with an energy crunch.

Norway has drawn up plans to slash its electricity exports to Europe, adding to the pressure on the continent's governments as they grapple with an energy crunch.

Power prices hit a record high on Monday after Norway announced the likely cuts. German baseload year-ahead power, the European benchmark, rose to a record high of 415 euros ($425) per megawatt hour on Monday before paring gains slightly on Tuesday.

Norway's hydroelectric reservoirs are running low after a prolonged period of dry weather in Europe, and the government is facing anger over rising electricity prices.

The country's oil and energy minister, Terje Aasland, said on Monday the government had to act to ensure Norway could keep producing electricity throughout the winter.

He told the country's political parties that the government would prioritize the refilling of hydroelectric reservoirs over the export of electricity to Europe.

"When magazine filling falls to low levels compared to normal for the time of year, we will prioritize proper magazine filling during such periods," he said.

"In practice, this will involve control mechanisms that limit the possibility of export in the event of low reservoir filling."

The potential step is a blow to some governments' hopes that Norway could step up energy exports to counteract the fall in supplies from Russia.

Gazprom, Russia's state-owned natural gas monopoly, has cut natural gas supplies to Europe through the Nord Stream 1 pipeline to just 20% of capacity. Meanwhile, both the UK and EU are phasing out Russian oil imports.

Jim Reid, a strategist at Deutsche Bank, said: "This is a potentially significant development, since Norway is a key exporter of electricity to Europe and this comes on top of the existing energy disruption thanks to Russia's invasion of Ukraine, as well as the current European heatwave that has further bolstered demand."