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Gas prices in the US, Europe spike on hot weather
PERFORMANCE
GAS prices in the US and Europe rose sharply on the hot weather in the first week of August. US and European gas prices have risen by 22% to 33% respectively, but still remain low compared to past prices, reports BCS Global Markets.
A huge gas glut on the international markets and oversupply of LNG is capping prices, which have this year fallen to record lows. At their best LNG prices only rose to a high of $3 per mmcf ($107 per mcm) this week, still a fraction of pre- vious highs.
The weather-related spike in gas prices has lifted Gazprom’s stock price by 5% this week and brought forward seasonal increases by a few weeks. But analysts warn that the gas market remains woefully oversupplied.
Gazprom and Ukraine’s Naftogaz stock- piled large amounts of gas last winter ahead of an anticipated breakdown of a transit deal that was eventually signed at the last minute. Russia was expected to cut Ukraine off from transit gas that would have led to shortages in Europe. Both companies built up large reserves for this eventuality, but when a new deal was done they found themselves with a surfeit. An exception- ally warm winter and now hot summer only exacerbated the problem of supply. And rising supplies of LNG have made it worse.
“Due to the combination of the 2nd LNG glut and the [coronavirus] COVID-19 crisis, the global gas market is badly oversupplied, lead- ing to gas prices being pushed as low as $1.1/ mmcf in Europe (c$40/mcm) in May,” BCS GM reports. “A modest recovery to c$1.8/mmcf ($64/ mcm) in July was helped by the shut-in of two
thirds of the US LNG capacity.”
In the last few days of trading, anticipated
heatwaves in both Europe and the US have helped push up gas prices sharply in both regions, helped by a reported rise in flows to LNG facilities in the US, maintenance outages in Norway and increased flows to Ukrainian storage.
European gas traders have more than quad- rupled the volume of natural gas they store in western Ukraine’s underground reservoirs, reports Ukrtransgaz. Offshore companies have parked 5.3bn cubic metres under a customs warehouse regime that allows them to store gas duty free, paying only rent.
As Europe’s gas reservoirs fill up with cheap gas, the number of companies storing gas in Ukraine has jumped to 68 today, from 28 this time last year.
Ukrtransgaz has 11 underground gas storage facilities with a total capacity of 31 bcm – equal to the total storage capacity of Italy, France, Hun- gary and Austria combined.
The spike in gas prices is from a low base. Gazprom’s portfolio sales (including pricing links to spot, futures and oil markets) have been giving the company actual realised prices of c$100/mcm this summer, reports BCS GM, and so these increases alone will not move the needle much. The company is still only getting just above its accounting breakeven level of an estimated c$90/mcm.
Gas prices were already expected to rise to this level in September on a seasonal basis, and to c$4.5/mmcf ($160/mcm) in mid-winter, says BCS GM.™
A huge gas
glut on the international markets and oversupply of LNG is capping prices, which have this year fallen to record lows.
Week 32 14•August•2020 w w w . N E W S B A S E . c o m
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