Volatility in European gas prices in recent days has highlighted a conundrum facing traders: whether the energy crisis remains severe enough to justify importing more seaborne LNG cargoes during the summer months when demand is low.
Prices at Europe’s natural gas benchmark, the Title Transfer Facility (TTF), rose 20% to 36 euros per megawatt-hour on Tuesday, extending a rally that started last week and marked its first weekly gain in 10 years.
Since the peak of the energy crisis, TTF has fallen by more than 90% from an all-time high of more than €340/MwH last summer, as Europe refilled stores and reduced its reliance on Russian gas.
But prices have been weighed down by weather forecasts and extended outages from key Norwegian fields, with traders becoming concerned about gas supplies from the European Union, despite unusually high EU inventories for this time of year.
While the EU is on track to meet its target of reaching 90% of its natural gas reserves in November, traders worry that short-term demand could undermine the plan.
These include hot summers requiring more gas for cooling, a pick-up in Asian demand and more supply disruptions to remaining Russian pipeline gas streams. While Russia used to account for 90% of Europe’s supply, the group still needs LNG to make up the shortfall during the winter.
“Everyone knows in the back of their minds that once this gas starts being consumed, and if the cargoes keep going to Asia, we’re going back to where we were two years ago,” when there was a global appetite for LNG, said a gas trader. compete.
A big part of last year’s price surge came as buyers drove Asian rivals out of the market. In early June, the market seemed to indicate that there was enough gas in Europe, at least for now. TTF fell to a two-year low, its lowest level before Russia began squeezing European pipeline gas supplies ahead of its invasion of Ukraine.
That’s because the EU’s gas storage facilities – a key factor in meeting winter demand – are already close to 70%, about 20% higher than the previous five-year average.
Low prices have discouraged traders from shipping LNG by sea to Europe and looking for other markets for bigger profit margins. Traditionally, this has focused on Asian countries such as Japan, China and South Korea, which were premium markets for supercooled fuels before the European energy crisis.
“The market is well balanced at the moment,” said Natasha Fielding, head of European gas pricing at Argus Media. “It’s a guessing game as to whether Europe will need to reduce LNG imports in the summer, or whether pipeline flows to the region will be significantly reduced,” she said.
While Asian LNG demand has been subdued so far this year, “the base case is that Northeast Asian buyers such as Japan, China and South Korea will ramp up their buying activity ahead of the winter heating season,” said Sam Reynolds of Asia LNG and Gas Industry Energy Economics and Head of Research at the Institute for Financial Analysis. “This could lead to increased competition for global supply, which could lead to higher prices.”