Gas prices in Europe have returned to decline after the accident at the LNG plant in Norway

European gas prices, which jumped 15% this week after reports of a gas leak at Equinor’s LNG plant in Norway, are back on the downside. The plant is expected to return to work on June 8. For now, there is no reason to expect the downtrend in the European gas market to change: although LNG prices in Asia are already higher than in Europe, there is still a long way to go before fierce competition for cargo with the current sluggish demand, analysts say.

Gas prices in Europe were once again exceptionally volatile, rising more than 15% on May 31 on a report of an LNG plant failure in Norway and crashing back a day later when it became clear that the problem was not serious. By the end of the trading day on June 1, spot prices on the Dutch TTF hub fell by 14% to $258 per 1,000 cubic meters, while July futures are trading at the same level.

Norwegian Equinor 31 May reported about a leak at its only Snohvit LNG plant in Hammerfest. A refrigerant leak occurred in a valve on one of the gas cooling circuits, the plant was completely shut down. In its message, Equinor indicated that it could not yet give a date for the resumption of the plant. However, on June 1, the operator of the Norwegian gas transmission system Gassco disclosed in an intelligence update that the resumption of gas supplies to the plant in Hammerfest is planned on the evening of June 8. This LNG plant consists of only one line with a capacity of 4.3 million tons per year, which is less than 5% of all gas exports from Norway.

Such a sharp reaction of the market to a fairly standard situation led a number of analysts to suggest that traders are not sure that European gas prices will continue to fall and the market may “grope for the bottom” in the coming weeks.

Gas prices in Europe have been declining almost continuously since December 2022, having fallen 6.5 times since then, and 13 times relative to the peak values ​​of August 2022. Importantly, the current level of prices in Europe has become lower than the spot prices for LNG in Asia, which should lead to the redirection of cargo. Thus, the consulting company Auxilione expects a reduction in LNG supplies to the UK in the next two weeks to the lowest levels over the past few months.

However, most experts point out that demand for gas in Asia also remains moderate, so a significant flow of cargo may not occur. “It will take a really, really hot summer in Asia to boost demand for gas and create significant resupply needs,” said Energy Aspects analyst Leo Kabuche, quoted by Bloomberg.- Such a scenario will indeed lead to a massive shipment of LNG from the US to Asia through the Panama Canal or around the Cape of Good Hope, but this is still far away.

Kommersant’s interlocutors in the industry draw attention to the fact that although the situation with physical gas supplies in Europe has completely normalized (all current demand is satisfied), this has not led to a decrease in the volatility of gas prices.

In their opinion, the persistence of sharp price fluctuations – by tens of percent and even several times – will remain a characteristic feature of the European gas market until a fundamental adjustment to the new operating conditions without Russian gas takes place, which will take several years.

Yuri Barsukov