Experts: gas prices in Europe may continue to fluctuate

The dynamics of the European gas market have changed almost completely due to the energy crisis that has been going on for almost two years.

The supply-demand imbalance, which arose when the economies began to recover after the Covid-19 epidemic, turned into an energy crisis with the effects of the war launched by Russia in Ukraine for the supply of gas.

While Europe has taken steps to reduce its imports from Russia, the largest gas supplier, Russia has sharply reduced its gas supply to the continent in response to the sanctions.

The European Union (EU) has embargoed Russian oil and coal, but not natural gas, but has pledged to end all Russian fossil fuel supplies by 2027.

According to data from the Bruegel research organization, the supply of gas to the EU from Russia via pipelines decreased by 78 percent between March 2022 and March 2023, despite the fact that the embargo was not implemented. In this period, EU imports of liquefied natural gas (LNG) from Russia decreased by 25 percent.

Gas prices, which had risen since the start of the energy crisis, continued to rise rapidly after the war, and by August 2022, the price of gas per megawatt hour would exceed €300 (per 1,000 cubic meters). 3 thousand 453) It was recorded as the date it broke the record for beating the dollar.

In the EU, which increased its LNG imports by 60 percent to fill the gap from Russian gas, the absence of a major interruption in the winter period and measures to reduce gas demand caused prices to fall.

PRICES ARE AT THE TOP OF THE LAST TWO MONTHS

Although prices, which peaked, entered a downward trend from this date, they did not return to pre-energy crisis levels.

In Europe, gas prices have been on a new high for almost three weeks, falling below €27 per megawatt hour ($311 per 1,000 cubic metres) in July.

At Australian LNG facilities, the world’s largest LNG exporter, plans to strike by workers demanding better pay and working conditions and a failure to conclude negotiations lead to risk pricing in gas markets.

The possibility of disruption due to the strike at three facilities, which account for 10 percent of global LNG trade, caused a 30 percent rise in gas prices in Europe. Prices increase to 40.7 euros per megawatt hour (1,000 cubic meters) on August 21 468.72 dollar) reached its highest level in the last two months.

Although Australia’s direct supply of LNG to Europe is limited, Europe’s growing reliance on LNG is directly affected by supply concerns in global markets.

COLD WEATHER AND SUPPLY OFFERS

According to experts, gas prices in Europe will continue to fluctuate for a while and demand will play a more prominent role in the European gas market than supply.

Dmitry Marinchenko, Senior Director of Oil and Gas at Fitch Ratings, stated that Europe could supply limited natural gas from Russia, which was its main supplier, saying: “Gas prices in Europe will remain volatile for the time being. “Although the mainland’s gas storage capacity is currently high, cold weather or supply disruptions may cause temporary price increases,” he said.

Assessing the impact of possible strikes at LNG facilities in Australia, Marinchenko said: “Strikes may be experienced at three facilities that account for 10 per cent of global LNG trade. However, if there is a disruption, it will not be long-term and will have a temporary impact on the global balance between LNG supply and demand.”

THE BEGINNING IS IN THE CONSUMPTION

Ana Maria Jaller-Makarewicz, a European analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said that in the event of strikes at LNG facilities in Australia, there will not be a severe disruption in supply as expected.

Stating that Australia is a major player in the global LNG market, Jaller-Makarewicz continued:

“Qatar, Australia and the US account for 60 percent of the world’s LNG supply. 99.9 percent of Australia’s LNG exports go to Asia, mainly Japan, China and South Korea. If these facilities are disrupted by the strike, these and other Asian countries may compete with Europe for LNG from other suppliers. Here, too, gas demand in Europe will play an important role in how this trade is shaped. Markets are currently pricing in risky, sensitive and volatile gas and LNG dynamics driven by a tight supply-demand balance.”

Jaller-Makarewicz said that the current gas storage capacity in Europe has reached 91.2 percent, which corresponds to 94 billion cubic meters of gas and could meet a third of the EU’s gas demand.

Stating that a 10 percent decline in gas demand in Europe in the first half of this year made it easier to fill up gasoline tanks, Jaller-Makarewicz said: “Gas consumption in Europe will be determined by weather conditions. and measures to reduce demand. So I think the main vulnerability in the European gas markets is on the consumption side right now. “The more gas Europe consumes, the more it will be affected by supply and demand factors, price volatility and weather conditions in different parts of the world.” (AA)