Gas prices went into reserve – Newspaper Kommersant No. 195 (7396) dated 10/20/2022

Gas prices in Europe continue to decline due to strong supplies of liquefied natural gas (LNG), creating some oversupply, and high stocks in storage. Gas futures have stabilized, the price for November has so far settled at about $1.3 thousand per 1 thousand cubic meters. In the spot market, the cost of gas “day ahead” continues to fall and already reaches $645 per 1,000 cubic meters. Warmer than usual weather is expected until the end of October, which will also keep prices down for now.

November futures on the Dutch hub TTF at the close on October 19 rose by 4.2% to €118 per MWh, or about $1.3 thousand per 1 thousand cubic meters, settling in average values ​​for mid-June. The spot price for day-ahead TTFs fell to €63 per MWh (or about $645 per 1,000 cubic meters). LNG tankers are steadily coming to Europe, partly offsetting the decline in pipeline gas supplies from the Russian Federation. Off the coast of Spain and Portugal, there are dozens of ships waiting for their turn to unload.

With oversupply, tanks at regasification terminals are now full, Spanish gas operator Enagas SA has said it may refuse to unload LNG until early November. “This situation is not an isolated event in the Spanish gas system, it also occurs in other countries around us,” the operator explained. Two more LNG tankers are moored in the UK near the Milford Hay terminal, according to Bloomberg.

EU countries have increased their purchases of LNG this year to compensate for declining supplies of pipeline gas from the Russian Federation.

The reduction in gas demand for industry, caused by rising fuel costs, and high stocks in UGS facilities have not yet allowed individual EU countries to absorb excess LNG imports. So, in the third quarter, gas consumption in the EU countries, according to Kommersant’s calculations, could fall by 10%, to 65.6 billion cubic meters, while LNG imports to the region immediately increased by 103%, to 27 million tons.

Despite some reduction in gas prices, EU countries continue to discuss measures to contain them. On October 20-21, EU leaders will discuss an emergency package of measures proposed by the European Commission – a new LNG benchmark, a dynamic TTF price ceiling and mandatory joint gas purchases. Individual countries are taking independent measures to reduce prices. Thus, France and Germany are extending the service life of old nuclear reactors.

European gas storage facilities are now 92.66% full, well above the average for the past five years.

However, the EU fears that replenishment of stocks by next winter (2023-2024) will be difficult in the event of a complete cessation of supplies from the Russian Federation.

Warmer weather in October also helps lower prices: for now, UGS facilities continue to operate in the pumping mode, although usually by October 20, storage facilities are transferred to withdrawal. However, until the end of October, the temperature in the UK and North-West Europe, according to Refinitiv forecasts, cited by Reuters, will be significantly above the seasonal norm.

High wholesale gas prices have already had a negative impact on demand in energy-intensive industries, causing a reduction in production. In order not to exacerbate the danger of gas shortages this winter, the EU countries have agreed to voluntarily reduce consumption by 15%. According to the data of the European Commission for the first half of the year, demand in the EU decreased by 11%, to 201.8 billion cubic meters. Consumption fell the most during this period in Finland (by 55%), Slovakia (by 45%) and Latvia (by 33%). Among the largest consumers, gas purchases fell most of all in the Netherlands – by 25%, in Germany – by 22%, in France – by 13%.

According to Sergei Kondratiev from the Institute of Energy and Finance, a decrease in gas prices to the level of $1.1-1.2 thousand per 1 thousand cubic meters can create conditions for an increase in demand by 5-10% relative to the current level. First of all, in energy-intensive industries (metallurgy, production of building materials, gas chemistry). However, according to the expert, consumption growth is unlikely to be significant, including due to the EU policy to limit demand.

Tatyana Dyatel