Gas prices in Europe: the illusion of relaxation

In the long run, the natural gas situation in the European Union could clearly improve: LNG carriers not delivering LNG to Spanish shores, Dutch TTF price below €100, gas price temporarily in the red. End of October 2022… But this softening is explained by economic factors (stockpiling, milder-than-usual temperatures, economic slowdown, vigilance, etc.) that do not protect against new price increases or shortage risk this winter. For the winter of 2023-2024.

The end of this month of October 2022 was marked by a forgotten situation in the fossil gas market in the European Union: supply far above demand, sharply falling prices and LNG carriers waiting to deliver their LNG.

TTF prices have dropped dramatically this fall

For several weeks now, LNG carriers have been circling the Mediterranean and, above all, the Atlantic coast of Spain, looking for a European regasification terminal ready to welcome them but without finding a buyer.

This situation, logically, affected the price of natural gas: the Dutch TTF fell below 100 euros at the end of October 2022, for the first time since June 2022. So, its price is reduced by 60% in comparison. to a historic level in August After Russia’s Nord Stream 1 transport to Europe is completed.

Symbolically, on October 25, 2022, the price of TTF in the spot market (for immediate purchase) even briefly crossed into negative territory for the first time since 2019: at that time, customers buying gas in the market got fat. people got paid to do it!

Full stock for winter

Paradoxical as it may seem, this situation is not exceptional, it even occurs quite regularly in commodity markets during very short periods when supply greatly exceeds demand.

Does this mean that the gas crisis in Europe is over? Far, far from it. These events are actually caused by a very special conjuncture. start, The natural gas reserves of the European Union are full to the brimlike never before, with a historical fill rate of 93.6% – a feat achieved by paying the golden price of LNG and Russian gas (when it was still available).

Therefore, European Union countries buy only the gas they consume. This contraction in demand in early autumn is quite classic and it is not unusual for LNG carriers to queue in Spain during this period.

Low consumption compared to 2021

Moreover, this October was particularly mild, severely limiting the use of gas for heating and therefore consumption. At the same time, consumption in the manufacturing sector is also weaker than usual, as high energy prices continue to slow European industrial production. Finally, all the countries of the European Union have implemented energy saving measures that reduce gas consumption.

Full stocks, less consumption than usual: enough to lower prices. Moreover, the bulk of LNG tankers is also misleading: some actually consider prices on the spot market too low and prefer to wait for a (much) price increase to deliver LNG.

According to Vincent Demouri, Chief Representative of GIGNL (International Group of Liquefied Natural Gas Importers), no “Slots available in Europe in November” offloading LNG carriers that become temporary floating storage “Until consumers need gas and prices become more attractive.”

2023-2024 winter threat, heading for price hikes if temperatures drop

But this situation will not last long. In the short term, it may even change: if temperatures start to drop or industrial production starts to rise again (thanks to lower prices), the TTF is likely to jump as well.

However, the next winter, 2023-2024, proves to be the most critical: “The continent is not out of the woods. The winter of 2023 will be even more difficult as Russian flows continue to decline.”Rystad Energy analyst Nicole Bromander predicts.

Indeed, the European Union will probably not be able to rely on Russian gas to fill its reserves next summer. And the race for alternative sources will become increasingly complex and critical.

When Germany and France accused the US of raising LNG prices

It is enough to strengthen the position of countries that export LNG to Europe, often at very high prices, such as Qatar or the USA, which became the main supplier of the Old Continent this year.

In this document, American diplomacy has just reacted (very) strongly to the claims of French and German Economy Ministers Bruno Le Maire and Robert Habakkuk criticizing the US for selling its LNG to the European Union. “Four times the price they sell to manufacturers.”

Brad Crabtree, the assistant secretary of energy for fossil fuels in the Biden administration, strongly condemned it. “Recent Allegations of Price Gouging by US LNG Producers”.

The US denies it and accuses middlemen of playing into the price hike

“I want to be very clear: these claims are completely false. The vast majority of liquefied natural gas produced and exported from the United States is under long-term contracts and is publicly owned (…) American LNG export prices remain close to the price available in our domestic market. »he says.

He certainly acknowledges that the buyers of these long-term contracts, non-American oil companies and energy brokers, have no qualms about pushing the mark when selling American LNG in Europe, but for Brad Crabtree, “This is an issue that needs to be resolved between European countries and those trading with American LNG.”

Finally, he (rightly) mentioned that Uncle Sam is doing everything to ensure the energy security of the European Union with three countries (including France) in the top 5 US LNG destinations.

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