With a quote of around €70, the gas price is at pre-Ukraine war levels. High temperatures mean that heating needs to burn less strongly than in previous years and due to the large production of renewable energy, little gas is currently needed to generate electricity. Nevertheless, the gas market remains quite tense. The question is whether the EU will be able to obtain enough LNG in the coming winters to continue to fill the gas reserves.
After a period of sharp declines, the gas price remained relatively stable this week. On Wednesday, January 4, the TTF price was at the lowest point of the week, at €65,02. After that, the gas price fluctuated approximately between €70 and €75, with a highest price of €74,30. On January 11, the price fell below €70 again. At the time of writing (Wednesday afternoon, January 11), the gas price is €65,42.
This means that the gas price is at the same level as in January 2022. The mild weather remains the main cause of the low gas price. It has been a lot warmer than average since mid-December. Due to the warm weather, heating systems do not have to work so hard at the moment.
In addition to spring temperatures, the large production of green energy also ensures lower gas consumption. Because large amounts of wind energy were generated in various European countries, relatively little gas was needed to produce electricity this week. In the Netherlands, 47% of all electricity was generated from renewable energy last week. Of this, 37,8% came from virtually free solar and wind energy. In the same week, only 35,6% of all electricity was generated by gas-fired power stations. Normally this percentage in the Netherlands is around 50%.
Due to the lower gas demand in recent months, European gas reserves are still well filled. This week, European fill rates fluctuated around 83%. These gas reserves have been approximately 70% full over the last five years. The Dutch gas supply was 7% full on Saturday, January 77. This means that the filling level is about 3% higher than Gasunie's target of 74%.
Tension not from the market
Despite all these windfalls, there is still a lot of tension on the gas market. Extreme savings are required to maintain the price point before the Ukraine war. Last week, demand for gas was even 45% lower than in the same week of 2021.
Concerns about the medium term continue to dominate the gas market. The question is whether additional imports of LNG can compensate for the lower supply from Russia in the coming winters. The European Union is missing about 150 billion m3 of Russian gas. Norway manages to absorb slightly less than half of this volume. The EU is therefore dependent on LNG imports for a substantial part of its gas demand.
However, the question remains whether the EU will be able to import sufficient liquefied gas immediately. In 2022, 105 billion m3 of long-term contracts for LNG will be concluded worldwide. Of these, only 23% are destined for Europe. The fact that the EU has been able to obtain large quantities of LNG so far is mainly due to low demand from China. Due to the lockdowns, the demand for liquefied gas in that country was much lower than in previous years. Now that China is slowly but surely reopening, it is becoming a lot more difficult for European member states to obtain large quantities of LNG.
If Europe is unable to maintain the current large-scale savings in the coming years, LNG imports would have to triple to meet European gas demand. All in all, increasing import capacity does not appear to be sufficient to meet such a gas demand. International production of liquefied gas will also have to increase significantly.