Energy experts, are warning that the gas market is becoming more unstable, and prices are rising as Europe prepares for another winter of heating needs.
In recent months, European gas prices have been fluctuating a lot, mainly because of factors like extreme weather, ongoing maintenance at gas facilities, and most recently, worker strikes at major liquefied natural gas (LNG) facilities in Australia.
Last week, employees at Chevron’s Gorgon and Wheatstone natural gas projects in Western Australia went on strike after a prolonged dispute about pay and job security. These planned work stoppages, lasting up to 11 hours each, are expected to continue until Thursday. There’s even a possibility that the strike could escalate and last for two full weeks.
The gas market is getting more unpredictable, and prices are going up in Europe due to various factors, including labor disputes in Australia.
Gas Price Surge and Market Volatility
On Tuesday morning, the front-month gas price at the Dutch Title Transfer Facility (TTF) hub, which serves as a key European benchmark for natural gas trading, experienced a 1.4% increase, reaching 36.3 euros ($38.91) per megawatt hour. Last month, the TTF contract had surged to approximately 43 euros due to concerns related to potential strike actions.
According to Ana Maria Jaller-Makarewicz, an energy analyst at the Institute for Energy Economics and Financial Analysis, a think tank based in the United States, market sentiment has been heavily influenced by the apprehension of an imbalanced fluctuation in gas supply and demand.
She explained that the confluence of reduced gas usage and Europe’s early replenishment of its storage facilities had contributed to averting a surge in gas prices akin to the extraordinary peak of 340 euros witnessed last summer.
Nonetheless, due to the unpredictability surrounding developments in Australia, Jaller-Makarewicz advised Europe to prepare for heightened volatility and an upswing in prices.
“Gas markets are becoming more precarious, with gas and LNG prices now displaying heightened volatility, largely influenced by global factors,” remarked Jaller-Makarewicz.
She further noted, “The unpredictability of forthcoming events that could impact gas supply renders it exceedingly challenging to forecast the equilibrium of supply and demand and the extent to which prices may surge. As exemplified by the events in Europe last year, the sole method for importing nations to mitigate this risk is by curbing their domestic consumption.”
Extremely unstable
European Union, achieved its goal of filling gas storage facilities to approximately 90% capacity, accomplishing this milestone approximately 2.5 months ahead of the November 1 deadline. This accomplishment places the EU in a comparatively robust position to address the requirements of the upcoming winter heating season.
Recent data gathered by the industry organization Gas Infrastructure Europe indicates that the EU’s collective storage levels now average nearly 94% full.
Nevertheless, the International Energy Agency (IEA) warned that even when storage sites are at full capacity, they do not offer an absolute guarantee against market conditions during the winter months.
“Our simulations demonstrate that in the event of a cold winter and a complete cessation of Russian piped gas deliveries to the European Union starting from October 1, 2023, there is a high likelihood of renewed price volatility and increased market tensions,” stated the global energy watchdog in its annual gas market report, which was published on July 17.
International Energy Agency, statement coincides with the ongoing efforts of the 27-nation bloc to reduce its dependence on Russian fossil fuel exports following Russia’s full-scale invasion of Ukraine. Analysts at the political consultancy Eurasia Group express concerns about the potential for “significant disruptions” in European markets, including possible outages caused by Norwegian winter storms and further reductions in Russian gas supplies to Europe.
Market Uncertainty and Outlook
Christyan Malek, who serves as the global head of energy strategy and heads EMEA oil and gas equity research at JPMorgan, described the gas market’s condition as “extremely unpredictable,” making accurate forecasting challenging.
Malek observed that European gas markets seem to be factoring in two key elements: the achievement of Europe’s gas storage objective ahead of its set timeline and the potential for a substantial price surge toward the end of the year should an unusually cold winter occur.
“In our assessment, our stance on gas prices is relatively bearish,” Malek stated “Street Signs Europe” on Monday.
“At the year’s end, we’ll have reached 95% storage, and by March next year, we’ll be at 50% storage. What does this signify? It signifies that we’ve established a substantial cushion,” Malek explained, alluding to Europe’s efforts to fill its gas storage facilities.
He further remarked, “However, should winter turn exceptionally cold… that’s when we could encounter difficulties.”
Although analysts anticipate that the volatile market conditions will continue to unsettle traders, some believe that the strikes occurring in Australia are the sole factor likely to maintain upward pressure on prices in the coming months.
Kaushal Ramesh, an analyst at Rystad Energy in Oslo, stated that gas market volatility resurfaced with the commencement of labor disputes at significant gas facilities in Australia.
“Nonetheless, the potential impact of these strikes is probably the only optimistic aspect in the short-term market, as we have now entered the pre-winter shoulder season, and other indicators point towards a bearish trend in both Europe and Asia,” Ramesh noted in a research note.
Conclusion
Europe faces rising gas prices and market instability as winter approaches. Factors like extreme weather, maintenance, and labor disputes in Australia contribute to price fluctuations. While Europe’s early storage filling provides some buffer, uncertainties remain, including potential disruptions. Analysts advise caution, emphasizing the market’s unpredictability.
