Page 4 - GLNG Week 43 2022

GLNG COMMENTARY GLNG

EU gas prices tumble in

a lull before the storm

COMMENTARY GAS prices have been falling fast in the last few won’t increase soon. Consider this the calm
weeks as the EU storage tanks are nearly full. before the storm. Once the weather inevitably
Unlike equities, which are priced on a discount begins to cool, we expect prices to begin to rise
to future revenue flow, gas prices are set on the significantly.”
day depending on how much space is left in the Cold weather is on its way and when the flows
tanks and how much gas is being consumed. into the EU tanks reverse and gas starts being
Given at the moment the tanks are also com- taken out again prices are expected to jump: gas
pletely full and thanks to one of the balmiest futures price gas at $1,500 per 1,000 cubic metres
Octobers in years, the price for gas could well go mid-winter and, depending on the weather, it is
negative in the next few weeks. still not entirely clear if Europe can get to April
“TTF spot gas prices fell to $990 per 1,000 without a shortage of gas to heat homes and
cubic metres [€94.2/MWh] on high storage and power industr
warm weather in the region – the lowest level The EU has almost been too successful in its
since mid-June. European storage is currently efforts to prepare for a possible end to Russian
93.6% full, while temperatures in Germany are exports of gas to Europe. And indeed that gas
hitting 16-18C every day, quite warm for the flow has indeed largely stopped after a series of
time of year,” BCS GM said in a note. explosions destroyed three of the four strands
The downward pressure on gas prices has of the two Nord Stream gas pipelines that run
mounted rapidly. A flotilla of LNG tankers is under the Baltic Sea on September 26. A reduced
currently anchored off the EU coast, holding flow of gas continues to transverse Ukraine and
far more gas than the tanks can accommodate. the TurkStream pipeline continues to oper-
On top of that, European countries have rallied ate, although the capacity of that pipeline is far
to governments’ calls to decrease consumption, smaller than Nord Stream.
further reducing demand. A Brussels-based Another problem is that record-high Euro-
think-tank recently estimated the pan-Europe pean demand and customers that are willing to
fall in consumption at 7% and in Germany con- pay ten-times the usual market rates have sucked
sumption has dropped by an estimated 30%. in a large supply of LNG carriers that now find
Negative gas prices would be a repeat of oil they can’t unload their gas.
prices that fell to less than zero for the first time An economic slowdown in China has left it
ever in April 2020 due to similar bizarre market with a surplus of Russian LNG that it has been
conditions cause by the coronavirus (COVID- reselling to Europe, accounting for 7% of the
19) and likewise turned the market on its head total LNG supplies in September.
thanks to a massive slump in demand. A crunch in both supply and prices may come
soon, as Brussels is currently discussing how to
Winter is coming impose a price cap mechanism on European
Like oil, gas prices are expected to bounce back gas imports as part of an eighth sanctions pack-
dramatically once new demand appears next age. Importantly, at a EU ministers meeting in
month. (The Brent oil blend was trading at $92 Brussels last week Berlin dropped its objections
per barrel at the time of writing, and gas at $1,035 to a gas price cap, although the details of the
per 1,000 cubic metres.) The fall in gas prices is mechanism have not been agreed on and will be
widely seen as a lull before the storm, as winter is worked out in the coming weeks.
coming, warns Capital Economics.
“The reason for the relative weakness in Silver lining
European gas prices is quite straightforward: In the meantime, the fall in energy prices is good
seasonal demand has yet to begin its upward news for many European countries. It reduces
climb as warm weather lingers in Europe, while the pressure on budgets and allows governments
nearly full storage means there are few options to pass on smaller price increases to households,
for injecting the marginal bit of imported gas,” thus reducing the size of the political backlash
BCS GM says. “That doesn’t mean that Europe’s that there would have been if power and heat-
energy crisis has been cancelled, or that prices ing bills were to decuple in the course of a few

P4 www. NEWSBASE .com Week 43 27•October•2022