Page 6 - EurOil Week 45 2022

EurOil COMMENTARY EurOil

European gas prices climb again as

continent heads for winter

Winter is coming, raising prospects of another significant increase in gas prices

EUROPE AFTER spiking at €339 per MWh ($3,741 per demand from residential, business and small
1,000 cubic metres) in late August, the front- industrial users dropped 33%, and usage by large
WHAT: month contract at the Dutch TTF natural gas industrial users fell by 27%.
European gas prices are price slumped to below €100 per MWh at the Besides high prices and EU targets, demand
climbing once more after end of October. Even though prices have risen has also been lower because of warmer-than-
significant decline since again in early November, they remain far below usual weather recently. This has meant that
late August. the level reached during the summer. heating demand is low, and the continent’s gas
The reasons for the sharp spike in prices inventories are being conserved.
WHY: this summer, even though prices are typically Another factor has been ample LNG supply.
Winter is coming, lower during the warmer months of the year, Reports are emerging of LNG vessels queuing at
bringing colder weather, are well-known. Demand rebounded quickly European ports to offload their cargoes, as high
and there is only a after the ending of coronavirus (COVID-19) prices have meant that Europe rather than Asia
downside for Russian pandemic measures, Russia made steep cuts is now the premium market.
supply. to supply in the months after beginning its High LNG imports have helped mitigate the
war in Ukraine, renewables underperformed impact of a further decline in Russian gas supply
WHAT NEXT: and a summer heatwave that increased volumes. Russian deliveries came to a record low
Prices will rise further air-conditioner use and curbed hydroelec- of only 2.1bn cubic metres in October, or 5.6%
over the coming months. tric generation. below the previous low seen in September.
The steep decline in prices since August was Lower gas prices are likely to be only tempo-
the result of Europe’s success in expanding gas rary, as mild weather gives away to cold winter
volumes in storage over the injection period, in temperatures. There could also be a further cut
spite of high prices. in Russian supply, and any outages in LNG or
The continent also effectively cut its gas other pipeline imports into Europe would exac-
demand over recent months, exceeding EU erbate the situation. At the same time, there is
targets, as high prices simply led to demand limited upside for increased supplies, as there
destruction. According to Bloomberg, citing is hardly any extra global LNG capacity due to
data from Engie’s market-analysis platform come online until next year.
Energyscan, demand in Western Europe was Rystad Energy noted last week that the
down 22% year on year in October. The electric- rebound in futures prices in November is a sign
ity sector increased consumption by 14%, but of things to come. ™

P6 www. NEWSBASE .com Week 45 14•November•2022