Rising Natural Gas Prices in Europe: Impact on Supply and Market Trends

2023-06-15 14:31:00

From two-year lows just two weeks ago, natural gas prices continue to rise. Around 09:55 GMT (11:55 a.m. in Paris) this Thursday, the Dutch TTF futures contract, considered the European benchmark, climbed more than 14% to 43.85 euros per megawatt hour (MWh), shortly after touching 44.75 euros per MWh, the highest price since early April.

“Several interruptions in Norwegian production, combined (…) resulted in an increase of more than 50% (prices) of the most traded futures contracts” in the European market, comment analysts from Energi Danmark.

Gas: the jump in deliveries to Europe fills the coffers of Norway

In the wake of the war in Ukraine, Norway has become the main supplier of natural gas to the European continent. But at the end of May, “a gas leak at Equinor’s LNG plant in Hammerfest forced it to close”, thus note the analysts of DNB, doping since the prices.

Result: according to Lu Ming Pang, of Rystad Energy, flows via Norwegian gas pipelines to continental Europe and the United Kingdom fell to 244 million cubic meters per day on June 5, against 300 million m3 per day observed the last year.

No worries

In early June, the price of TTF had fallen to 22.885 euros per MWh, its lowest price since May 2021. High storage levels in Europe combined with lower demand due to mild spring temperatures weighed on prices. . But since that low in more than two years, the price of TTF has soared more than 90%.

European natural gas prices at two-year low

This sharp rise is still moderate compared to the surges that the highly volatile TTF has already experienced. For DNB, the rise in prices is not “not dramatic for European gas markets, which are currently oversupplied given the weakness of demand”.

LNG imports down

This rise in gas prices in Europe “came as imports of LNG (note: liquefied natural gas) began to slow under the combined effect of heavy maintenance of LNG supply facilities and higher Asian demand”, indicate Energy Aspects analysts in their weekly report distributed by UniCredit.

Liquefied natural gas supply cuts were expected by analysts, but “the market took the physical evidence of this downturn as an opportunity to exit some of the short positions that had been building up in the gas market,” they continue.

LNG constituted 32% of European gas supply in 2022, compared to 19% in 2021 and 2020.

Liquefied natural gas (LNG): why prices are falling, against all odds

Slight rise for oil

On the oil side, a barrel of Brent from the North Sea, for delivery in August, took 1.15% to 74.04 dollars. Its American equivalent, a barrel of West Texas Intermediate (WTI) for delivery in July, gained 1.11% to 69.03 dollars.

Prices took advantage of the pause in rate hikes by the US central bank (Fed) announced on Wednesday, a first since March 2022 after ten consecutive increases. The monetary institution, however, warned to see two new increases by the end of the year. This status quo should in any case allow the world’s largest economy to breathe for a while, which could support demand for crude.

(With AFP)