Aerial view of the LNG storage and vaporization vessel “Höegh Esperanza” at the Wilhelmshaven LNG terminal.
Picture Alliance | Picture Alliance | getty images
Energy analysts are warning of more volatility and higher prices in the gas market as Europe races to prepare for another winter heating season.
European gas markets have been increasingly volatile in recent months due to extreme heat, gas plant maintenance and, most recently, industrial action at major liquefied natural gas (LNG) facilities in Australia.
Workers at US energy giant Chevron’s Gorgon and Wheatstone natural gas projects in Western Australia went on strike last week, following a lengthy dispute over pay and job security. An 11-hour work stoppage is scheduled until Thursday, after which the action is expected to escalate to a two-week total strike.
Currently, there are no further talks scheduled to resolve the dispute, raising fears that a prolonged halt to production would lead to a reduction in global supply.
Australia is a major player in the global LNG market – and even though most of its exports are to Japan, China and South Korea, disruption from the strike could result in Asia and Europe competing for LNG from other suppliers.
The uncertainty of future events affecting gas supply makes it extremely difficult to predict how supply and demand may be balanced and how much prices may rise.
Anna Maria Zaller-Makarewicz
Energy Analyst at IEEFA
The front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for natural gas trading, traded 7% higher on Monday afternoon at 36.95 euros ($39.6) per megawatt hour. The TTF contract rose to nearly 43 euros last month amid fears of strike action.
“Fears of imbalanced gas supply and demand have dominated markets,” Anna Maria Zaller-Makarewicz, an energy analyst at the Institute for Energy Economics and Financial Analysis, a U.S.-based think tank, said in a research note.
He said a combination of lower gas consumption and Europe filling its storage facilities prematurely had helped keep gas prices from reaching an extraordinary peak of 340 euros last summer.
However, given the uncertainty over how the situation will play out in Australia, Zaller-Makarewicz said Europe should prepare itself for more volatility and rising prices.
“The gas market is becoming riskier – gas and LNG prices are increasingly volatile and strongly influenced by global factors,” Jaler-Makarewicz said.
“The uncertainty of future events that could affect gas supply makes it extremely difficult to predict how supply and demand may be balanced and how much prices may rise. As in last year’s events in Europe As was seen, the only way importing countries can mitigate that risk is by reducing their internal consumption,” he said.
‘Very unstable’
The EU reached its goal of filling gas storage facilities to 90% capacity, nearly 2 1/2 months ahead of its Nov. 1 deadline. This leaves the block in a relatively strong position to deal with the demands of the upcoming winter heating season.
The latest data compiled by industry group Gas Infrastructure Europe shows that the EU’s total storage levels are on average about 94% full.
However, the International Energy Agency warns that even full storage sites provide “no guarantee” against market conditions during winter.
“Our simulations show that a severe winter, price volatility and market stress could easily be exacerbated by a complete halt to Russian piped gas supplies to the EU from October 1, 2023,” the global energy watchdog said in its annual gas markets report. Can renew.” , published on 17 July.
The IEA’s warning comes as the 27-nation bloc is distancing itself from Russian fossil fuel exports following the Kremlin’s full-scale invasion of Ukraine. Analysts at political consultancy Eurasia Group fear that “real disruption” to European markets is possible, including from the Norwegian winter storm and cuts to remaining Russian gas in Europe.
Christian Malek, global head of energy strategy and head of EMEA oil and gas equity research at JPMorgan, said the situation in gas markets is “very volatile” and therefore hard to predict.
Malek said European gas markets appear to be meeting their gas storage targets in both of Europe’s buffers ahead of schedule, and the risk is that a particularly cold winter could lead to a “huge” price hit by the end of the year. “Increase” may occur.
“As a household, we are relatively bearish on gas prices,” Malek told CNBC’s “Street Science Europe” on Monday.
“By the end of the year we’re at 95% storage, by March next year we’re at 50% storage. What does that mean? It means we’ve got a pretty good buffer,” Malek said, referring to Europe. Filling its gas storage facilities.
He added, “Now, if it gets really cold in the winter… we have a problem.”
A new floating storage and regasification unit considered vital for Italy’s energy independence arrived in Tuscany on March 19, 2023. The Golar Tundra project is a key part of Italy’s plan to reduce its dependence on Russian gas following its invasion of Ukraine.
Filippo Monteforte | AFP | getty images
While analysts say volatile market conditions may keep traders worried, some believe the strike in Australia is the only thing likely to push prices higher in the coming months.
Volatility has returned to gas markets after the start of industrial action at major gas facilities in Australia, said Kaushal Ramesh, analyst at Oslo-based Rystad Energy.
“However, the potential impact of the strike is the only bullish element in the near-term market as we have now entered the pre-winter shoulder season and other indicators are bearish in both Europe and Asia,” Ramesh said in a research note. ” The note was published on Monday.
Source: www.cnbc.com
