Gas prices in Europe fell due to the increase in supplies from Norway, the filling of underground storage facilities and weak demand

Gas prices in Europe fell below $300 per 1,000 cubic meters amid increased supplies from Norway, full underground storage facilities and weak demand. According to analysts’ forecasts, if demand persists in July-August, spot prices may drop to $200-220 per 1,000 cubic meters. However, the extreme heat in southern Europe may slightly increase the demand for gas for the power industry in the near future.

The increase in supply after the completion of repairs at the Norwegian gas processing plant in Nyhamn led to a decrease in gas prices in Europe. According to ICE FuturesAugust futures on the Dutch hub TTF fell by the end of the day by 1.7%, to €25.5 per 1 MWh, or about $295 per 1,000 cubic meters.

Norway is now the main source of pipeline gas supplies to Europe (about 7 billion cubic meters in June against about 2 billion cubic meters from the Russian Federation), so any change in the supply of Norwegian gas leads to price volatility. Total exports from Norway, taking into account the capacity of the plant in Nyhamn, are now about 320 million cubic meters per day.

In general, over the past week, due to weak demand and stable replenishment of reserves in underground storage facilities, gas prices fell by 22%.

At the same time, the extreme heat that has settled in the south of Europe has a serious impact on prices. According to the forecasts of Maxar Technologies Inc, referred to by Bloomberg, this week the temperature in Italy and the Balkans will remain above the norm, the heat will reach 40°C. Similar levels could be observed in Spain, Greece and France, which will increase the demand for electricity needed for air conditioning.

Meanwhile, underground gas storage facilities are already 81.43% full. At the current pace, EU countries could reach their 90% inventory target much earlier than September, which could lead to a sharp drop in prices as incoming gas has nowhere else to store. The decline in gas prices relative to last year does not yet lead to a recovery in industrial consumption, although there are signs of recovery in some sectors, it follows from the data S&P Global Commodity Insight. Thus, industrial demand in Northwest Europe fell by 16% in June compared to last year and was 25% lower than the average in 2017-2021.

The gap between the price of gas in Europe and Asia continues to grow, but is not yet large enough to stimulate a massive redirection of LNG cargo. The JKM spot LNG index as of July 17 was about $420 per 1,000 cubic meters. S&P Global Commodity Insight estimates that the net premium in the price of gas to Asia compared to Europe in the second half of the year will be $5 per 1,000 cubic meters ($0.145 per MMBtu), including freight and delivery.

Now TTF prices are 5.5 times lower than last year, but demand for gas continues to decline in most EU countries, said Sergey Kondratiev from the Institute of Energy and Finance.

The largest drop is observed in Spain, where, according to ENTSOG, consumption fell by 17% yoy in July 1-15, in France – by 16%, in Poland – by 13%. “At the beginning of the year, we had expectations that lower prices would lead to a recovery in demand, but so far consumption has remained subdued,” recalls Mr. Kondratyev. In the short term, demand, in his opinion, may increase due to extremely hot weather in the south of the EU. For example, in Italy, the output of gas-fired thermal power plants last week was 14% higher than in 2022, although in Spain and France it is still below 2022 levels. “In my opinion, the price shock of 2021-2023, the expectation of a shortage of supply and tightening of regulation led to the fact that consumers began to switch to alternative fuels,” the analyst notes. “I think that in July-August we can see a decrease in spot prices up to $200–220 per 1,000 cubic meters if demand remains weak and LNG supply remains high.”

Tatyana Dyatel