Gas prices blown away by the wind – Kommersant
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Gas prices in Europe have fallen to July 2021 levels due to persistently high supply of LNG from the US, warm weather and strong winds boosting wind power generation. June futures on the Dutch hub TTF fell to $423 per 1,000 cubic meters. Given all these factors combined with weak domestic demand for gas in the EU, analysts see no reason for prices to rise so far. But they admit that there is still a threat of an increase in demand for LNG in China and a complete cessation of pipeline gas supplies to Europe from the Russian Federation.
European gas prices continue to decline. June futures on the Dutch TTF hub on May 3 reached the level of July 2021, falling by 1.4%, to €37 per 1 MWh, or about $423 per 1,000 cubic meters, follows from the data of the ICE Futures exchange. The spot price for gas with day-ahead delivery was €36.6 per 1 MWh, or about $420 per 1,000 cubic meters. In fact, prices have already reached values that were considered normal in the industry before the start of the conflict in Ukraine.
Record volumes of LNG are now flowing into the continent, underground storage is at a high level, and strong winds and warm weather are reducing the need for gas used in heating and power generation. Wind power generation covered about 13% of the region’s electricity needs over the past week, according to WindEurope data. On May 2, the figure was 13.8%.
Since the beginning of the year, gas futures on the continent have decreased by about 50%, and compared to the record values of spring 2022, when prices rose to almost $3.9 thousand per 1 thousand cubic meters, more than eight times.
Such high volatility was caused by a decrease in pipeline gas supplies from the Russian Federation after the outbreak of hostilities in Ukraine. However, last winter was relatively calm due to milder than usual weather and lower LNG demand from China. Europe has already begun to prepare for the next heating season by storing gas in underground storage facilities.
Russian President Vladimir Putin on gas prices, April 27:
This is an expensive product today and will only rise in price.
The continent is now receiving record volumes of LNG, mostly from the United States. In April, according to GIE data, LNG imports to Europe amounted to more than 12 billion cubic meters. As Bloomberg reported on May 3, the number of LNG tankers waiting to unload for 20 or more days has stabilized at 34 vessels in recent days. This means a significant amount of inventory in the market.
“Given weak domestic demand, record UGS stocks and high LNG supply, we should not expect a quick return to rising prices,” said Sergey Kondratiev from the Institute of Energy and Finance.
According to the GIE, gas reserves in EU UGS facilities exceed 60%. With a high probability, EU countries will be able to fill their storage facilities to a level of 90% even before the start of the heating season. But low prices may also trigger an increase in industrial demand for gas, which has been declining in the EU throughout the past year.
To stabilize the market, Europe will need to reduce gas consumption at the same pace as last year (about 57 billion cubic meters), and reduce it by another 55 billion cubic meters, analysts at McKinsey & Company say in the study “The Balancing Act: Ensuring the Security of the European Gas and energy market”.
“With a further decline in demand and the emergence of new sources of natural gas supplies, Europe will be able to maintain existing prices over the next few years,” the study says.
Prices in the EU could be negatively affected by rising demand for LNG in Asia, which will create additional competition in the market and lead to higher prices and a potential reduction in supplies to Europe by 35 billion cubic meters, analysts at McKinsey & Company believe. The June futures on the Platts JKM index, which reflects the cost of spot LNG supplies to Northeast Asia, is about $415 per 1,000 cubic meters, while the futures for LNG supplied to Northwest Europe is $350 per 1,000 cubic meters. Thus, there is already an Asian premium on the market.
In addition, according to McKinsey, there remains the risk of a complete cessation of pipeline imports from Russia, which could reduce supply to the EU by another 25 billion cubic meters this year.
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