Gas prices are going up due to politics, shortages and cold spells
Spot prices (January futures) for gas in Europe on December 13 rose to $ 1380 per 1,000 cubic meters. m, which was a record increase since October 5. At the same time on December 10, according to the ICE exchange, the Dutch hub TTF futures cost about $ 1255 per 1,000 cubic meters. m. High prices persist in the Asian market. According to the Platts Index, December 10, 1,000 cubic meters. m of natural gas cost about $ 1260.
The rise in prices came amid a sharp statement by German Foreign Minister Annalena Burbock in an interview with ZDF. She noted that she saw no reason to launch the Nord Stream-2 gas pipeline in the near future. “In its current form, this pipeline cannot be approved because it does not meet the requirements of European energy legislation,” Deutsche Welle quoted her as saying. Burbock also stressed that the decision on non-compliance of “Nord Stream – 2” with EU standards was made by the German regulator – the Federal Network Agency of Germany (Bundesnetzagentur).
In mid-November, the German regulator announced a temporary suspension of the certification of Nord Stream 2 AG (Gazprom’s ownership of the new pipeline) as an independent Nord Stream 2 operator. The Bundesnetzagentur reported that to continue the certification registered in the Swiss Zug Nord Stream 2 AG will need to be organized in accordance with German law. To this end, the operator company will need to set up a subsidiary in Germany that owns a section of the pipeline that runs through Germany. Against the background of this message then spot prices rose by about $ 100 per 1,000 cubic meters. m.
Europe has met the winter season with a record shortage of gas in underground gas storage facilities (UGS). According to Gas Infrastructure Europe (GIE), on December 11, storage facilities were filled by 63% (68 billion cubic meters), while on the same date in 2020, storage facilities were filled by more than 95%. In early November, Russian President Vladimir Putin said that Gazprom needed to speed up the replenishment of underground storage facilities in Europe after completing the pumping of energy resources in storage at the home market. Against the background of this statement, spot prices in Europe fell from $ 1250 to $ 975 per 1,000 cubic meters. m. But by early December, European countries due to weather factors spent about 23% of the total gas reserves pumped into storage.
Vasily Tanurko, director of the ACRA corporate ratings group, believes that the key factor influencing the rise in prices is the low level of gas reserves with growing consumption during the cold season and the lack of growth prospects. The expert also added that in the long run the equilibrium price in the gas market in Europe can be expected at $ 250-300 per 1,000 cubic meters. m. “But, apparently, the market will reach equilibrium no earlier than 2023,” – he added.
But Sergei Kapitonov, a gas analyst at the Skolkovo Energy Center, said that long-term factors, such as limited gas volumes in underground storage facilities or the ongoing legal settlement of Nord Stream 2, had been reflected in stock prices earlier.
The expert stressed that the market situation is currently influenced by unpredictable factors such as weather or tactical actions of suppliers, in particular Gazprom’s decision to regulate the pumping of the Yamal-Europe gas pipeline or through Ukraine. Capitonov also added that spot prices in Asia have a direct impact on the price of gas in Europe. He believes that for the growth of demand for gas in Europe and emerging Asian markets, its cost should be in the range of $ 250-280 per 1,000 cubic meters. m.
According to the analyst, now the market does not have factors that can dramatically change the price situation, at least until the end of the heating season. Kapitonov believes that the early hypothetical launch of Nord Stream 2 could reassure traders not even in terms of entering the market of additional volumes, but in terms of diversifying supply routes. In the event of unforeseen weather anomalies or a sharp reduction in supply from suppliers, it cannot be ruled out that prices could rise to $ 2,000 per 1,000 cubic meters. m, added Capito.
The overall reduction in gas reserves in European storage facilities has been observed since early November, the current rise in prices is due to the factor “Nord Stream – 2”, says consultant Vygon Consulting Ivan Timanin. He suggested that against the background of declining UGS stocks, growing consumption in the winter season, maintaining high spot prices in the Asian market, as well as a possible postponement of the launch of Nord Stream 2 by the end of the year, gas prices in Europe may exceed $ 2000 for 1000 cubic meters. m.
The expert also added that the reduction in prices to less than $ 1,000 per 1,000 cubic meters. m will come no earlier than the II quarter of 2022, after the launch and entry into full capacity of two major US liquefied natural gas projects – Calcasieu Pass for 10 million tons and the sixth phase of Sabine Pass for 5.2 million tons of LNG per year. Until then, he added, we can expect the launch of “Nord Stream – 2”. In this case, prices may drop to $ 600-800 per 1,000 cubic meters. m, said Timanin.