Gaza received a northern surcharge – Newspaper Kommersant No. 224 (7425) dated 12/02/2022

Gas prices in Europe started growing again: on December 1, the price of January futures for the first time since October exceeded $1,700 per 1,000 cubic meters. A cold spell is expected across the continent in December, which could increase demand, which was held back in a warmer-than-usual November. Demand for gas is also growing due to calm weather, which reduces the output of wind farms.

The weather in the near future will test the readiness of the EU countries for winter. As weather forecasters expect, the first serious frosts await the continent in December – cold arctic winds will come to Europe, and the temperature will be below the long-term average for this period. In November, on the other hand, the weather was much milder than the average for recent years, which made it possible to delay the start of the withdrawal season from underground gas storage facilities until November 14 and held back gas prices for some time.

“A cold start to December will lead to increased demand in Central and Northern Europe, and this could continue into the second half of the month if the blocking anticyclone in the Arctic remains strong,” predicts Maxar meteorologist Matthew Dross, quoted by Bloomberg.

The first cold snap in Europe has already increased the rate of extraction from UGS facilities. January gas futures on the Dutch hub TTF on December 1 exceeded $1.78 thousand per 1 thousand cubic meters, but then prices fell, closing the auction already at $1.52 thousand per 1 thousand cubic meters, follows from ICE data. On the spot market, a contract with a day-ahead delivery at the TTF hub on December 1 exceeded $1,620 per 1,000 cubic meters.

Since the beginning of the military operation in Ukraine, the Russian Federation has reduced pipeline gas supplies to “unfriendly” countries, leaving only one branch of Ukrainian transit (with a daily flow of 43 million cubic meters) and Turkish Stream, which supplies up to 27 million cubic meters per day through Turkey to Hungary, operating. and Serbia. Since the beginning of the year, Gazprom’s supplies to major foreign customers have fallen by 44.5% to 95.2 billion cubic meters. Throughout the summer, the EU has been intensively replacing Russian gas, mainly due to LNG supplies.

EU countries have accumulated the highest ever stocks in underground storage this year, but during cold weather, the rate of withdrawal may increase. EU governments have advised citizens and large industrial consumers to reduce it by at least 20% during the winter.

Now, according to GIE, the level of stocks in all UGS facilities in the EU reaches 93.19%, stocks in Germany, the largest consumer of gas in the EU, are also high – 98.27%.

According to Gazprom, as of November 29, 2.3 billion cubic meters of gas were withdrawn from European UGS facilities, which is 3.3% of the volumes pumped in preparation for the heating season. “The load on UGS facilities in Europe in the current autumn-winter period will be higher than in previous years, due to the changed logistics and sources of gas supply to the European market,” the Russian monopoly believes.

While there is plenty of gas in European UGS facilities, traders will be wary of spending it for two reasons. Firstly, many companies bought it in the summer at extremely high prices, exceeding $3,000 per 1,000 cubic meters in August, and in order not to incur losses, they must sell it even more expensive (taking into account storage fees and the cost of capital raised for gas purchases). Secondly, European companies are afraid of difficulties with filling UGS facilities next summer if supplies from the Russian Federation remain low.

The share of WPP generation in the EU energy balance fell to 6.3% on November 30, which contributes to a greater load on gas generation.

On average over the past week, according to WindEurope, the share of renewable energy was 18%. At the same time, the rate of LNG supply to the EU remains stably high.

Asia has not yet entered into competition with Europe for LNG cargoes, although gas prices have risen there too, but to a lesser extent. The JKM index for January is at the level of $33 per MBTU (or about $1.18 thousand per 1 thousand cubic meters), “accordingly, the gap in quotes has grown and now stands at almost $400,” says independent analyst Alexander Sobko. “It will be difficult for many Asia-Pacific countries to outbid European proposals, but they can rely on their long-term LNG contracts and are likely to partially return to replacing gas with coal and oil products,” he believes.

Tatyana Dyatel