News Energy
Gas price remains low, but LNG purchase appears to be expensive
For a moment, the gas price seemed to be considerably higher last week, but that fear now seems to have been allayed. The gas price has fallen further. The high filling level ensures stability on the gas market, although that filling level appears to have a weak spot. In addition, analysts warn about the high costs of European LNG procurement.
Gas prices fell again this week. On Wednesday, April 5, the gas price stood at €44,58. On Tuesday, April 11, the gas price was about €1,50 lower. At that time, the TTF was quoted at €31,10.
This means that a gas price of more than €50 seems to have been averted for the time being. On Monday, April 3, gas traded for €51,37 for no apparent reason. Less than four days earlier, the gas price was almost 18% lower. For a while there was a fear that the gas price had reached a permanently higher point, but it is now clear that this prediction has not materialized. Three days after the peak, the entire increase was canceled out.
The fact that the gas price bounced back so quickly seems to be the result of the high fill levels. European gas reserves are currently about 55,6% full. It is crucial that the reserves of large-scale consumer Germany are still 64% full. This seems more or less the final low point of the year, as spring is just around the corner and the heating season is almost over.
Yet there seems to be a weak spot in European gas storage and that is France's gas reserves. The filling level in that country is 28% and refilling is proving to be a considerable challenge. The protests against the pension reform are still continuing, forcing LNG tankers to divert to countries such as the Netherlands and Spain. That seems good news for the markets that can import more LNG, but the European trading system means that the benefit these countries experience is limited. European gas is traded to the highest bidder within the EU. A lower French filling level could therefore mainly lead to a higher European gas price. In addition, poorly filled French gas reserves limit the growth of the high European filling rate.
Possibly insufficient long-term LNG contracts
In addition, analysts continue to warn about the risks surrounding the upcoming winter. For example, growing Chinese demand could make it more difficult for European countries to obtain sufficient LNG and gas stocks could prove insufficient even at a filling level of 90% during a cold winter.
In a recent analysis Reuters also concluded that European LNG policy is causing Europeans to pay more for their gas. The news service comes to the conclusion that European countries have made insufficient progress in concluding long-term LNG contracts. In any case, Europe cannot replace Russia's pre-war gas supplies with guaranteed supplies of LNG.
This winter we managed to buy enough gas. However, this success comes at a price, according to Reuters. Because Europe was forced to buy all its liquid gas on the spot market and that comes with a hefty price tag. Gas on the spot market is much more expensive than contracted gas. Last year, Europe bought 33% of its LNG on the sports market. In 2021 that was only 13%. Analysts expect Europe to buy half of all its LNG on the international spot market this year.
Matthew Bremer
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
