Gas prices in Europe continue to fall

On May 18, spot gas prices in the European Union (EU) fell below $350 per 1,000 cubic meters for the first time since mid-June 2021. m, according to the ICE exchange.

June gas futures at the TTF hub in the Netherlands at 10:00 Moscow time reached 30.7 euros per 1 MWh, or $343.2 per 1,000 cubic meters. m. By 13:45 Moscow time, they dropped to 30.5 euros per 1 MWh ($ 340.9 per 1000 cubic meters). This is 2.2 times less than on the same date last year.

Gas in Europe has been getting cheaper since the end of August 2022. The fall accelerated in December last year, when stock prices fell below $800 per 1,000 cubic meters for the first time since February last year. m. March 9 this year, the price fell to $450 per 1000 cubic meters. m. After the end of the heating season in the EU (ended on April 6), gas continued to become cheaper and on May 10, for the first time since July 2021, it was traded for less than $400 per 1,000 cubic meters. m.

Analysts attribute the continued fall in fuel prices to the significant level of gas reserves in European underground storage facilities (UGS) and stable supplies of liquefied natural gas (LNG) to the EU market.

According to Vedomosti’s calculations based on Gas Infrastructure Europe (GIE) data, as of May 16 (latest available data), there were 70.1 billion cubic meters in European UGSFs. m of gas. Vaults were 64.3% full, about 20 percentage points above the five-year average on the same date. The high level of stocks in the vaults was ensured primarily due to the warm weather in Europe last winter (Vedomosti wrote about this on April 5). This was also supported by a decrease in demand from industry, a high level of wind power generation (WPP) and a stable supply of LNG.

LNG supplies to the EU market in April reached a historic high of 12.06 billion cubic meters. m (Vedomosti wrote about this on May 3). From May 1 to May 16, LNG imports, according to GIE, amounted to 6.2 billion cubic meters. m, or an average of 387.5 million cubic meters. per day (against 402 million cubic meters per day in April).

The cost of gas on the EU spot market affects the export prices of Gazprom, the monopoly supplier of Russian pipeline gas abroad. On May 17, Russian President Vladimir Putin, during a meeting with members of the government, said that the price of gas “has dropped a little.” At the same time, Russia, according to him, is reducing gas production, and these actions are related to “the need to maintain a certain price environment on world markets.” Finance Minister Anton Siluanov said at the same meeting that the budget’s oil and gas revenues “deviated from plan” as revenues from oil and gas sales were less than expected. The hardest hit were revenues from export duties on gas sales. The amount of this type of income amounted to 172 billion rubles. – 4.5 times less than in January-April 2022. In January-April 2023, the budget received the most in the form of MET for oil production – 1.7 trillion rubles. Revenues from the gas industry turned out to be almost 7 times lower – 253 billion rubles.

“Gazprom» in 2023 has not yet disclosed operating performance and the average gas export price. Gas exports from Russia dropped sharply in the spring and summer of 2022 due to the NWO in Ukraine, anti-Russian sanctions and sabotage on the Nord Stream gas pipeline. According to Vedomosti’s calculations based on data from the European Network of Gas Transmission System Operators (ENTSOG), at the beginning of May this year, Russia on average supplied 67 million cubic meters to Europe via pipelines. m of gas per day against 308 million cubic meters. m at the beginning of May 2022.

Senior analyst “BCS A world of investment” Ronald Smith notes that the current levels of gas in EU storage are “extraordinarily large” for late spring, making it much easier to replenish stocks by next winter. At the same time, demand for LNG in Asia remains moderate, which keeps spot prices below European ones. Based on the data of the Platts index and Vedomosti’s calculations, gas prices in Asia in May were lower than in Europe by $5–30 per 1,000 cubic meters. m.

Sergey Kaufman, an analyst at FG Finam, adds that so far none of the potential risks for the EU gas market has come true: LNG supplies remain high, there are no weather anomalies, competition from China for free gas volumes has not intensified, and new force majeure pipeline gas supplies from Russia did not happen. He does not rule out that, under favorable weather conditions, the price situation in the EU gas market may “completely normalize”, that is, prices will move into the range of $200-300 per 1,000 cubic meters. m.

A significant part of Gazprom’s current supplies to Europe is pegged to gas futures with a certain delay, analysts say. Smith explains that the current decline in quotations (below $350 per 1,000 cubic meters) will affect Gazprom’s prices within one to four months. He recalls that when spot gas prices in Europe fall, Gazprom prices become higher than spot prices due to a temporary lag, which leads to a decrease in demand for Russian pipeline gas. According to Finam’s Kaufman, if the situation for Gazprom does not improve, then the dividend forecast will have to be revised downward. At the beginning of this year, Finam predicted a payment for 2023 at the level of 16.6 rubles. per share.

Vedomosti sent a request to Gazprom.

According to Smith, by winter the price of gas in the EU will exceed $600 per 1,000 cubic meters. m. According to the forecast of FG Finam, the average gas price in Europe in 2023 will be $600 per 1,000 cubic meters. m. But under favorable weather conditions, the average price may be lower, says Kaufman.

A period of declining gas prices in Europe has replaced a period of long-term growth caused by the energy crisis in the EU. The crisis began in the summer of 2021 against the background of low stocks in European UGSFs after record fuel withdrawals in the winter of 2020-2021, as well as energy shortages as a result of a drop in wind power generation due to calm weather. By December 2021, exchange prices for gas in the EU reached a historic high, exceeding $2,200 per 1,000 cubic meters. m. In March 2022, against the backdrop of the beginning of Russia’s NWO in Ukraine, quotes set a new record, approaching $3,900 per 1,000 cubic meters. m. Then prices gradually declined, but in August they again moved to growth, although they did not reach their March highs.