World gas prices are falling at different rates
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The sharp decline in Russian pipeline gas supplies to Europe in 2022 not only led to record fluctuations in prices for this type of fuel in the EU countries, but also increased the discrepancy in its prices in the markets of Europe, Asia and the USA – and this situation will continue in the next two years, analysts predict Focus Economics.
Gas prices in Europe in August exceeded $340 per 1 MWh (the unit for measuring its value accepted on world exchanges) – this is 400% higher than it was at the beginning of 2022 (see chart). Now the cost of gas has fallen to the level of the summer of 2021. Capacity for LNG, which is an alternative to natural gas, will increase, but competition for such supplies will also increase (for example, demand is expected to grow in China). In addition, in 2023 it will not be possible to adjust demand in the EU countries as strong as in 2022 (it shrank by 20% in August-November), and the lack of pipeline gas supplies will make it difficult to replenish storage facilities before the winter season, experts say. The consensus forecast for Europe assumes a decrease in gas prices to $28 per 1 MWh, while Fitch forecasts an average price of $38.46, S&P Global – $20.15, the World Bank – $32. Decreasing gas prices will ease their pressure on inflation – last year, according to Allianz Group, the contribution of energy resources to price growth in the EU amounted to 49%, this year it may drop to 7%.
In Asia, the cost of gas increased by 250% in 2022, the growth was restrained by the “subsidence” of business activity in China against the backdrop of lockdowns and the effect of long-term contracts, under which the price of gas is pegged to the cost of oil. China’s LNG demand is forecast to increase by 9-14% this year, which will also support higher gas prices (250% higher than the 2016-2019 average). The average price for Asia this year, according to the consensus forecast, will be $24.89 per MWh.
Gas prices in the US are significantly lower than in Europe and Asia, and their growth last year was supported by a 9.6% increase in LNG exports, which will continue to increase against the reopening of the second largest LNG terminal, Freeport LNG, in Texas. According to Fitch’s forecast, the average gas price in the US this year could be $5.9 per 1 MWh, the consensus forecast is $4.5 per 1 MWh.
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