The experts responded: Will the increase in the price of natural gas return?
Despite the tight supply of natural gas, markets tended to stabilize due to low demand, high gas tank fill rates and decreased price volatility, according to experts.
As economies began to recover from the effects of the Covid-19 epidemic, the supply-demand imbalance, which first came into effect in the summer of 2021, turned into a post-war crisis initiated by Russia in Ukraine in the natural gas markets.
The increased demand for electricity and thus the use of gas in electricity production due to extremely hot summer weather, and Russia’s drastic reduction in the flow of gas to Europe in response to sanctions, has led to a crisis environment during the last two years. in the gas markets, where supply has been restricted.
Although residential gas use declined during the summer period, prices hit an all-time high as gas tanks filled in preparation for the upcoming winter.
PRICES STILL ABOVE AVERAGE
The price of futures contracts traded at TTF, Europe’s deepest natural gas trading point in the Netherlands, rose from €18.6 per megawatt-hour in August 2021, when the first increases began, to €346. in August 2022. The price in question was 87 euros on February 23, the day before the start of the war.
After seeing the spike, prices remain high compared to the 2016-2020 average, although they tend to decline due to declining gas demand, especially in Europe, and record liquefied natural gas imports ( LNG).
In the May futures contracts, the price of a megawatt-hour of gas is trading at 40 euros.
According to data from the International Energy Agency (IEA), demand for natural gas in European OECD countries decreased by 13 percent in the first quarter of this year, while Russia’s share of gas imports and EU LNG fell below 10 percent.
THE MARKETS HAVE A TENDENCY TOWARDS EQUILIBRIUM
Despite continued tight supply, markets are tending to stabilize on weak demand, high fill-up rates, and declining price volatility risk.
On the other hand, experts warn that it is necessary to be “cautiously optimistic” for the period of May and summer, when it is expected that gasoline tanks begin to fill up.
IEA natural gas analyst Gergely Molnar said that after post-war supply shortages, there was significant relief in natural gas markets and Europe continued to receive high levels of LNG thanks to weak competition in Asia.
Stating that the low demand also eased the market dynamics, Molnar continued as follows:
“Still, we can say that there is still a shortage on the supply side. This is due to our projections that Russia will drastically reduce gas flows to European OECD countries this year. We anticipate that Russia will reduce gas supplies to European OECD countries by another 35 billion cubic meters. We expect an increase of 20-25 billion cubic meters in LNG supplies from these countries. This increase will not be enough to fully cover the decline in Russian gas, which may create a shortage on the supply side.”
REDUCED PRICE VOLATILITY RISK
Molnar affirmed that currently the EU gas tanks have an occupancy rate of 57 percent, which is above the average of the last 5 years, and that in this way, the EU will need 50 percent less gas compared to to last year to reach 90 percent fullness before the next winter.
Noting that the risks in terms of price volatility have decreased because less gas will be needed to fill the tanks, Molnar said: “Natural gas prices are down 70 percent compared to the level of December last year. and there is a tendency to rebalance in the market. However, current price levels are higher than the average for the 2016-2020 period. So we’re still in a relatively high gas price environment. Still, we must remain cautiously optimistic. “Although market dynamics ease, this improved outlook should not distract Europe from taking the necessary steps to reduce market tensions,” he said.
“THE CONCESSION ON THE SUPPLY SIDE IS MANAGEABLE”
Ana Maria Jaller-Makarewicz, analyst at Europe’s Institute for Energy Economics and Financial Analysis (IEEFA), said gas demand was higher than expected due to low air temperatures in April, but the high occupancy rate. in stores continued.
Jaller-Makarewicz, who said they expect warehouses to start filling from next month in Europe with rising air temperatures, said: “We can say that the supply-side shortage continues, but the situation is manageable”. .
Stating that Europe’s LNG supply remains high, Jaller-Makarewicz said LNG has become a global commodity in the past two years of the energy crisis.
Noting that LNG has become a global commodity, its prices affected by events in the world, Jaller-Makarewicz said: “Uncertainties regarding LNG demand growth from China and import issues of LNG from some Asian countries make LNG purchases from Europe safer. Therefore, LNG prices also depend on many factors, from weather conditions to imports from other countries. Prices may be relatively high this summer, but I don’t think record levels will be seen in August 2022 unless something extraordinary happens.” He assessed it.
On the other hand, Jaller-Makarewicz shared the information that Russia’s share of LNG imports from Europe is at a high level at 13 percent, saying: “Although governments in Europe want to stop LNG purchases Russian, private companies are doing these imports and they have certain contracts”. saying.
According to IEEFA data, France was the largest Russian LNG importer in Europe last year, followed by Spain, the United Kingdom, the Netherlands, Turkey, Italy and Belgium. Belgium was the country that increased its LNG imports from Russia by 136 percent in 2022 compared to the previous year.
France increased its purchases of Russian LNG by 96 percent last year, the Netherlands by 94 percent, Lithuania by 88 percent and the UK by 71 percent. (AA)