Gas prices in Europe experienced a jump of about 20 % today, the most significant in three months. Bloomberg indicates a tightening market, partly prompted by likely rising demand for natural gas in Asia.
On the prominent Dutch futures market TTF, gas prices climbed to 29.36 euros per megawatt-hour on Monday, more than 23 per cent higher than Friday night. Although this is a substantial increase, the gas price remains relatively low compared to previous months. At the beginning of this year, the cost of natural gas was still around 70 euros per megawatt-hour. Last summer, it reached an all-time high of over 300 euros per megawatt-hour amid the worst energy crisis in decades, caused by the conflict between Russia and Ukraine.
The market has calmed down in recent weeks, but there are still concerns about the coming winter. Russian gas, transported through pipelines, does not immediately return to Europe, limiting supply. There are also fears of increasing competition with Asia for liquefied natural gas (LNG) supplies. Bloomberg data suggests that it is currently more profitable for US LNG ships to deliver to Asia, given forward market prices until September. In addition, Bloomberg notes a connection with Saudi Arabia's announcement to produce less oil from July. Long-term LNG contracts are often linked to oil.
Bloomberg anticipates a possible further rise in European gas prices. So far, limited demand has ensured relatively low prices. However, this situation could potentially give a misleading picture of the tight reserves available for next winter and the expected rebound in demand in Asia in the second half of the year.
Sources:
[1] Bloomberg, "Europe Gas Prices Soar 20% as Market Shows Signs of Tightening", https://www.bloomberg.com/news/articles/2023-06-05/european-gas-prices-rise-along-with-oil-after-saudis-pledge-cut, retrieved on 5 June 2023.
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