The scorching heat of the summer and a shortage of natural gas reserves for this winter are driving gas prices higher and higher.
European benchmark gas prices rose 14% in just three days to a new record high, continuing a rally from recent weeks. This is due to the high demand for gas for power generation in the context of prolonged heat and low supply from Russian pipelines.
Meanwhile, the EU’s scramble to fill gas storage before winter will see energy and gas split, industries will be shut down and households will have to pay for electricity, The cost of the fireplace is so high.
Europe is currently in the most precarious position, while natural gas prices are also recording gains in the United States and Asia. Demand for electricity is high while output is flat in the US, big buyers in Asia are also starting to return to the LNG market to secure supplies for the winter.
Now that LNG is a global commodity, benchmark gas prices and spot LNG prices are skyrocketing around the world. And prices could go even higher as winter approaches.
The price of European gas is currently equivalent to 410 USD / barrel of oil
European benchmark gas prices at the Dutch hub of TTF rose 14% from Monday (August 15) to Wednesday (August 17), up 6% on Wednesday to a new record of $240/megawatt. -hours. Gas prices have doubled since June, when Russia first reduced supply through Nord Stream, the key pipeline that carries gas to Germany, Europe’s largest economy.
Gas price movements at TTF Netherlands in the past 1 year (Source: Trading Economics)
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said: “European gas benchmarks currently trade at the equivalent of $410 per barrel of crude, which highlights the “degrading economic impact” weak for the region”.
Such record gas prices are affecting industries in Germany and the rest of Europe. Companies announced to suspend or cut production “until further notice” amid soaring energy costs.
Industries have warned that a drop in output and activity could lead to the collapse of supply chains and production. Governments are urgently trying to secure enough gas for the winter while trying to ease the cost burden on households. At the same time avoid the collapse of the industry and the wave of energy companies bankrupt.
As a result of the gas crisis and a heatwave that has limited supply and output from other fuel sources, electricity prices next year will continue to soar in Europe, where German electricity prices, the benchmark of Europe, rising to more than $508 per megawatt-hour, an unprecedented record.
Speaking to Bloomberg, Klaus Müller, the chairman of Germany’s energy regulator, said that although the pace of storage construction is faster than usual, Germany will only have enough natural gas to cover demand. for two and a half months this winter.
“The burden of high gas and oil prices will really mean we’re going to see some major European economies shrink next year,” said Amrita Sen, research director at Energy Aspects.
US natural gas prices hit record highs
European prices are at record highs and are about seven times higher than the US benchmark. But prices in the US at Henry Hub have also risen to a 14-year high. This is the result of flat domestic production and a strong increase in gas demand from the power sector during heat waves. Along with that is the amount of stock in the warehouse is lower than usual. despite an outage at the Freeport LNG export terminal, which supplies more gas for domestic consumption.
The Freeport LNG outage sent Henry Hub gas prices down 39% in June. But in July, higher-than-normal temperatures in much of the US led to a spike in gas demand in the power sector. , which helps absorb most of the surplus associated with Freeport LNG and keep natural gas inventories from growing any faster, according to data from the EIA. In addition, the organization also noted that natural gas price volatility is reaching an all-time high in the first quarter of 2022.
Active natural gas reserves are 12% below the five-year average and 10% below last year at this time, according to the EIA.
After slumping in early June due to a force majeure event in Freeport LNG, US benchmark gas prices have surged 70% since late June, hitting their highest since August 2008 at above 9.30 USD/MMBtu. The European benchmark price in MMBtu equivalent is currently close to $70/MMBtu – almost seven times higher than the US benchmark.
This large price difference is expected to pull more LNG export orders out of the US and into Europe, which is already at a record high as the EU seeks to replace as much Russian gas as possible.
Asian natural gas prices also soar
Higher demand in Northeast Asia has pushed spot LNG prices to nearly $60 per MMBtu – the highest level since early March when the Russia-Ukraine conflict erupted.
The price of burning in Asia is on the rise (Source: Bloomberg)
As winter approaches, natural gas prices could go much higher as Russian supplies remain low, demand for LNG grows, and US producers are in no hurry to ramp up production.
Ultimately, high prices could spur a response from US shale gas operators on the supply side, while on the demand side, record prices could accelerate demand destruction and engulf economies. Europe.
Reference: Oilprice
