Futures prices experienced a week-long surge for the first time in 10 weeks, amid worries that Europe may have to import more gas.
This recent instability in European gas prices has left traders uncertain if the ongoing energy crisis necessitates the procurement of more liquefied natural gas (LNG) cargoes during the typically low-demand summer period.
On Tuesday, the European gas benchmark, Title Transfer Facility (TTF), saw its price rise up to 20 per cent to €36 per megawatt hour. This increase marked a continuation of the trend that started last week when TTF experienced its first rally in 10 weeks.
From a record high of over €340/MwH during the height of the energy crisis last summer, TTF’s price has plunged by more than 90 per cent as Europe refilled its reserves and lessened its dependence on Russian gas.
However, prices have been disrupted due to predictions of warmer weather and extended supply outages at major Norwegian fields. Consequently, traders are becoming apprehensive about the EU’s gas supplies, even though storage is unusually high for this time of the year.
While the EU is poised to achieve its goal of having 90 per cent of its gas stores filled by November, there is concern among traders that short-term needs could undermine this objective. These include the potential for a hot summer leading to increased gas usage for cooling, a resurgence in Asian demand, and further disruptions to the remaining Russian pipeline gas flows. Even though Russia used to supply 90 per cent of Europe’s gas, the region still requires LNG during the winter months to compensate for the shortfall.
As one gas trader commented, “Everyone is aware that if consumption starts increasing and if cargoes continue to be shipped to Asia, we will return to the situation from two years ago.” During that period, there was global competition for LNG.
Last year’s significant rise in prices was largely due to the necessity for buyers to outprice Asian competitors. In early June, the market suggested that Europe had sufficient gas for the time being. TTF had even dropped to a two-year low, a level last observed before Russia began tightening Europe’s pipeline gas supplies prior to its Ukraine invasion.
The current situation sees the EU’s gas storage facilities, crucial for meeting winter demand, almost 70 per cent full, which is about 20 per cent higher than the five-year average for this season.
Low prices deter traders from sending LNG to Europe by ship, prompting them to explore other markets that yield bigger profit margins. Historically, these markets have included Asian countries such as Japan, China, and South Korea, which were premium destinations for this super-cooled fuel before Europe’s energy crisis.
“The market hangs in a delicate balance presently,” said Natasha Fielding, the head of European gas pricing at Argus Media. She described the situation as a game of speculation on whether Europe needs to reduce its LNG imports for the summer, or if there will be a substantial decrease in pipeline flows to the area.
While Asian LNG demand has been relatively low so far this year, Sam Reynolds, the Asia LNG and gas research lead at the Institute for Energy Economics and Financial Analysis, says the baseline expectation is that Northeast Asian buyers, including Japan, China, and South Korea, will ramp up their buying activities as the winter heating season approaches. “This could stimulate a rise in global competition for supplies, possibly leading to an increase in prices,” Reynolds noted.
