Gas comes out of the budget – Kommersant

Gas prices in Europe will continue to decline and are already below $300 per 1,000 cubic meters. A combination of favorable factors – high inventories, a stable LNG flow, low consumption and warm weather – continues to push prices down, while in Europe they are already starting to predict negative gas prices this summer due to market glut. The Russian budget has been budgeted for a much higher gas price, and as a result, it could miss $3-4 billion in export duty revenue in 2023.

Gas prices have fallen by 66% since the beginning of the year, June futures on the Dutch TTF fell by 10.23% on May 25, to €24.94 per 1 MWh, or about $280 per 1,000 cubic meters, follows from ICE Futures data . The day-ahead spot contract was trading at €26.85 per MWh, or around $300 per 1,000 cubic meters.

Stable high deliveries of LNG to the continent, warm weather and high stocks in UGS continue to push prices down. According to AGSI+, European average inventories are now at 66.5% and are likely to be filled to 90% by the end of August. In general, in the off-season – in May and early June, when the temperature conditions do not yet require air conditioning – traditional gas prices are reduced. Wind generation in the EU fell slightly this week: the share of wind farms in the energy mix dropped to 11.9%.

As writes Bloomberg, the European market may experience a glut in the summer. And, unless weak demand equals growing supply glut, natural gas prices could briefly drop below zero in some cases.

This scenario is most likely for the UK, which already faced such a situation in 2006, the agency writes. In this case, the sellers actually pay to have their gas taken away, since it is more profitable than storing it. Such situations periodically arise in the European electricity market.

If we exclude the weather factor (if, for example, it is hotter than usual in summer), electricity demand in the EU has historically increased by July, which usually coincided with a decrease in renewable energy generation, said Boris Sinitsyn, head of resource sectors analytics at Renaissance Capital. Because of this, the demand for fossil fuels for power generation typically increased by 10% by the end of summer compared to May.

“Therefore, a seasonal recovery in demand can at least stop the fall in prices, and in the event of weather anomalies, lead to their growth in the summer,” he said.

At the same time, even taking into account the serious drop in prices since the beginning of the year, the industry is still in no hurry to increase consumption. According to European Commission forecasts, gas demand in the EU in the next twelve months may fall more than the volumes of pipeline gas and LNG that countries expect to buy from Russia this year, which will help reduce inflationary pressure on the bloc, Reuters writes, citing a letter from the European energy commissioner. Kadri Simson. According to her estimates, the energy saving policy should reduce gas consumption on the continent by 60 billion cubic meters in 2023. From August 2022 to March 2023, gas demand in EU countries fell by 18%.

Against the backdrop of limited demand in the summer months, there will probably not be a significant increase in prices relative to the current level, but there are prerequisites for quotations to increase by the beginning of the heating season, when the shortage of LNG becomes apparent and consumption begins to grow, Ivan Timonin from Vygon Consulting believes. In this regard, by November-December, prices will probably be in the range of $500-600 per 1,000 cubic meters. “As the market remains tight given the prospects for rising demand in China, more significant price spikes are also possible in the winter of 2023-2024, which may be due, for example, to an increase in demand in the event of a noticeable temperature deviation from the normal level,” the analyst says.

The Russian government was counting on much higher prices in the EU countries in 2023: the Ministry of Economy budgeted prices at $700 per 1,000 cubic meters.

Last year, the Russian Federation supplied over 150 billion cubic meters of gas to the EU countries, this year exports may reach up to 50 billion cubic meters (including LNG). Pipeline gas deliveries to the EU may fall to 25 billion cubic meters, and if the average price for these deliveries during the year is $400 per 1,000 cubic meters, then the budget will miss $3 billion in export duty on gas.

A couple of years ago, it seemed that $300 per 1,000 cubic meters was a very good price, but the problem, of course, is not the price, but the drop in export volumes, notes Vitaly Yermakov from the Higher School of Economics. The price of gas in 2023 will be, in his opinion, very volatile. “We know that actual budget revenues are lower than planned, this is partly solved by resuming the sale of foreign exchange earnings, and most of the problem is associated with the use of a low formula price in calculating oil taxes,” the expert notes, recalling that the share of the gas sector in the total volume of oil and gas revenues is relatively small and 2022 was an exception.

Tatyana Dyatel