The bottom of the gas price still does not seem to be in sight. Due to a Brussels plan for extra savings and the weak European economy, the price on the TTF fell below €25. In addition, China appears to be choosing Turkmenistan over Russia as its main gas supplier.
Less than two weeks ago, the flag seemed to go up everywhere when the gas price fell below €30 for the first time in a year and a half, but the decline in gas prices is still continuing. The quotation on the TTF is now even below €25. On Wednesday, May 24, the TTF traded at €27,79. The gas price fell until May 26. On that day, gas traded for €24,52. Afterwards, the gas price increased slightly. On Tuesday, May 30, the gas price was €24,75.
This week, a sharp focus by the European Union on savings caused a further decline in the gas market. On Thursday, May 25, European Commissioner for Energy Kadri Simson announced a plan to save 60 billion cubic meters (CBM). The plan is intended to make Europe less vulnerable in the event of complete disconnection from Russian exports. The committee emphasizes that such savings would be greater than current imports from the country.
Low demand from European industry also causes gas prices to fall. This is not only the result of the shutdown due to the high gas prices of 2022, but also of the ailing European Economy. For example, according to Statistics Netherlands, the Dutch economy shrank by 0,7%. Germany is now even experiencing a recession. The German economy shrank by 0,3% this quarter, and in the last quarter there was already a minus of 0,5%. According to analysts, greater industrial demand will not materialize due to the weak economy, despite the lower gas price.
China chooses Turkmenistan
In addition, China has taken a major step in the construction of the Central Asian pipeline from Turkmenistan. Construction of the pipeline has been going on for ten years, but supply contracts have remained unsigned. However, that changed this week. According to analysts, imports from the central Asian country appear to be preferable to imports from Russia.
Russia is strongly pushing to connect the Siberia 2 pipeline to the Chinese gas network. In this way, Russia hopes to sell the gas that Europe no longer imports to the Chinese market. China does not appear to be taking action immediately. According to analysts, it appears that China has mainly used the Russian offer to extract favorable futures contracts in Turkmenistan. China already imports a fair amount of gas from Turkmenistan and currently pays 30% more for it than for gas flowing east via the Siberia line.
Russia had hoped that China would abandon the deal with Turkmenistan under the guise of 'the unlimited friendship' of both countries and focus entirely on Russian gas. So far, Russia seems to have been reluctant, although it cannot be ruled out that China will also conclude a deal with Russia. This enables China to continue to play the two countries against each other in the long term. Yet it is not yet a certainty. China itself still has many undeveloped gas fields. To import into a new line, international gas prices must be low enough to be cheaper than operating domestically. In addition, the price difference between gas from Turkmenistan and Russia must regularly increase sufficiently to make such an investment profitable.
The additional supply on the Chinese market could be good news for Europe. If China imports more cheap gas through pipelines, China's dependence on LNG could decline. According to the International Energy Agency (IEA), high LNG demand from Chinese industry is the biggest risk to the European gas market. Europe still purchases a lot of LNG on the daily market and due to high demand from the Asian country, prices could rise worldwide.