Page 4 - FSUOGM Week 43 2022

FSUOGM COMMENTARY FSUOGM

EU gas prices tumble in a

lull before the storm

Europe has seen some respite from soaring gas prices, but volatility this winter is feared.

EUROPE GAS prices have been falling fast in the last few thanks to a massive slump in demand.
weeks as the EU storage tanks are nearly full.
WHAT: Unlike equities, which are priced on a discount Winter is coming
Gas prices have been to future revenue flow, gas prices are set on the Like oil, gas prices are expected to bounce back
falling past as EU storage day depending on how much space is left in the dramatically once new demand appears next
tanks are almost full. tanks and how much gas is being consumed. month. (The Brent oil blend was trading at $92
Given at the moment the tanks are also com- per barrel at the time of writing, and gas at $1,035
WHY: pletely full and thanks to one of the balmiest per 1,000 cubic metres.) The fall in gas prices is
The EU has focused Octobers in years, the price for gas could well go widely seen as a lull before the storm, as winter is
heavily on storage negative in the next few weeks. coming, warns Capital Economics.
injection over recent “TTF spot gas prices fell to $990 per 1,000 “The reason for the relative weakness in
months. cubic metres [€94.2/MWh] on high storage and European gas prices is quite straightforward:
warm weather in the region – the lowest level seasonal demand has yet to begin its upward
WHAT NEXT: since mid-June. European storage is currently climb as warm weather lingers in Europe, while
Winter is coming, and gas 93.6% full, while temperatures in Germany are nearly full storage means there are few options
prices are expected to hitting 16-18C every day, quite warm for the for injecting the marginal bit of imported gas,”
bounce back. time of year,” BCS GM said in a note. BCS GM says. “That doesn’t mean that Europe’s
The downward pressure on gas prices has energy crisis has been cancelled, or that prices
mounted rapidly. A flotilla of LNG tankers is won’t increase soon. Consider this the calm
currently anchored off the EU coast, holding before the storm. Once the weather inevitably
far more gas than the tanks can accommodate. begins to cool, we expect prices to begin to rise
On top of that, European countries have rallied significantly.”
to governments’ calls to decrease consumption, Cold weather is on its way and when the flows
further reducing demand. A Brussels-based into the EU tanks reverse and gas starts being
think-tank recently estimated the pan-Europe taken out again prices are expected to jump: gas
fall in consumption at 7% and in Germany con- futures price gas at $1,500 per 1,000 cubic metres
sumption has dropped by an estimated 30%. mid-winter and, depending on the weather, it is
Negative gas prices would be a repeat of oil still not entirely clear if Europe can get to April
prices that fell to less than zero for the first time without a shortage of gas to heat homes and
ever in April 2020 due to similar bizarre market power industry.
conditions cause by the coronavirus (COVID- The EU has almost been too successful in its
19) and likewise turned the market on its head efforts to prepare for a possible end to Russian

P4 www. NEWSBASE .com Week 43 28•October•2022