Page 8 - FSUOGM Week 48 2022

FSUOGM PERFORMANCE FSUOGM

TTF remain in lull as EU stalls on

gas price cap plan

EUROPE THE front-month price at the Dutch TTF (Title €275 per MWh should be introduced for front-
Transfer Facility} hub has stayed level in recent month TTF derivatives. But the mechanism
The EU is struggling days at just under €135 per MWh ($1,490 per will only come into force when the proposed
to make any progress 1,000 cubic metres), following a more-or-less threshold is breached for two weeks, and if the
on its gas price cap steady decline after spiking at close to €347 per TTF price exceeds the LNG reference price for
proposal. MWh in late August. 10 consecutive trading days within two weeks.
Despite the Nord Stream 1 pipeline being There is still no consensus between EU
rendered inoperable in late September by major member states over the gas price cap, despite
leaks caused by suspected sabotage, prices have months of talks, and the commission’s proposal
been falling as a result of lower-than-expected has done little to bridge differences, with some
temperatures, demand destruction in Europe countries describing the suggested cap as point-
and ample global LNG supply. less, although Brussels could well lower the cap
“European temperatures have dived in the once the necessary legislation is in place.
last two weeks of November, kick-starting the Poland, Greece, Italy and Belgium have been
gas storage withdrawal season and boosting vocal supporters of the cap, with Germany
pricing momentum in Europe’s gas market,” Rys- reluctant to apply it due to concerns that a ceil-
tad Energy analyst Zongqiang Luo commented. ing price on gas could reduce supplier incentives
“Russia’s short-lived threat to halt gas transits to to provide enough gas onwards into Europe,
Europe via Ukraine’s Sudzha entry point on 28 especially when Nord Stream 1’s supply seems
November and ongoing discussions in the EU highly unlikely to resume in the near term,”
over a proposed cap on gas prices add to the Rystad noted. “There are also wider concerns
debate.” about the ability of some EU member countries
Rystad notes that the pressure that Russia has to provide financial aid to help utilities buy more
placed on Europe’s gas market by cutting sup- gas or to compensate citizens facing high house-
plies since its invasion of Ukraine began in late hold bills.”
February may have backfired in the long run, “Not every country has the flexibility to con-
as Germany, once Gazprom’s biggest market in tinuously offer financial support over the long
Europe, has signed two agreements to secure term,” Rystad continued. “According to the latest
LNG supply from Qatar’s North Field from 2026. government debt statistics for 2Q22 released by
“Europe’s gas market continues to adapt to Eurostat in late October, the government debt-
the possibility of a winter of ever lower Russian to-GDP ratio in the euro area is over 94%, with
gas volumes, despite Gazprom withdrawing seven countries exceeding 94%.”
its threat to cut gas flows via Ukraine’s Sudzha “In this case, the region would be looking at
entry point,” Rystad said. “Regardless, the impact structural and compulsory demand cuts unless
of the short-lived threat on supplies transiting the European Commission steps in and pro-
Ukraine was relatively minor with the market vides subsidies as it has in Iberia where €8.4bn
already pricing in the risk of the further decline in subsidies was provided to enable the region
in volume from Russian supplies or even a drop to cap gas prices at €40 per MWh for gas fired in
to zero as mentioned in our last outlook.” the power sector .”
The dip in gas prices comes as the European In a bright spot for European supply, Equinor
Commission faces criticism from EU member has filed a plan to develop the Irpa gas discovery
states for proposing an under-ambitious cap in the north of the Norwegian Sea, which will
on gas prices. The commission suggested on provide an additional 20 bcm of gas production
November 22 that a “safety price ceiling” of from the fourth quarter of 2026. ™

P8 www. NEWSBASE .com Week 48 02•December•2022