LONDON – Gas prices in Europe soared to record highs this summer, driven by factors ranging from low inventories and cuts to a wave of purchases in Asia, signaling further increases in the coming months that could mean higher domestic bills. high this winter.
The first month’s contract at the Dutch TTF center, a key European benchmark, reached 38.65 euros ($ 45.77) per megawatt hour on Tuesday, its highest level since Refinitiv Eikon’s records began. Britain’s first-month contract hit a record 93.35 pence per therm on Monday.
“A confluence of factors occurring at the same time has led to the recent bull run with record low gas storage, outages, ongoing / prolonged production issues and active Asian purchases,” said Nick Campbell, director of consulting firm Inspired Energy .
A cold winter earlier this year led to large reductions in storage stocks, which would normally be replenished during the summer months when demand tends to be weaker.
But a series of unexpected supply disruptions, coupled with a pickup in demand as economies rebound from COVID-19 restrictions, have led to a gas shortage.
Data from the IEA released last week showed that European gas consumption increased by an estimated 25% in the second quarter of 2021, its largest quarter-on-year increase since at least 1985.
“This exceptionally strong recovery has been driven by the combination of a prolonged heating season due to lower-than-average temperatures, increased gas flaring in the power sector, and a recovery in economic activity close to the pre-COVID-19 level. “said the IEA in its latest gas report.
Maintenance in Norway has slowed exports from its gas fields and Russia’s Gazprom has refrained from reserving additional capacity for gas supply to meet demand, a sign that it is awaiting commissioning of the Nord Stream 2 pipeline, stretching from Russia to Europe.
Liquefied natural gas (LNG) prices have also skyrocketed in Asia as buyers in the region tried to replenish stocks ahead of winter. Although European prices are high, the spread has not been high enough to attract tankers to Europe.
“The Japan-Korea-Marker (JKM) price for LNG will continue to push the TTF higher, but the TTF must recover much faster than the JKM (to attract LNG to Europe),” said Samer Mosis, analysis team leader. global LNG. at S&P Global Platts.
“The general theme that Europe has to fight with Asia for LNG will remain for the next three years,” he said.
The gas shortage this summer is already affecting winter gas contracts. Britain’s 2021 winter contract hit 100 pence per therm on Tuesday, the highest level for that contract since Refinitiv Eikon’s records began.
Price spikes in the wholesale gas market, if prolonged, can drive up retail gas prices for households. In Britain, wholesale prices account for around a third of consumers’ energy bills.
A cap on the most widely used UK electricity and gas rates increased in a review in April and is expected to rise further in the next review this fall as wholesale prices rise.
“An increase in retail gas and energy rates will be a shock to users this winter. Wholesale prices continue to rise alongside other generation fuels globally, so a clear end is not yet in sight, “said Glenn Rickson, head of European energy analysis at S&P Global Platts. ($ 1 = 0.8445 euros)
(Reporting by Susanna Twidale and Nina Chestney; Edited by Veronica Brown and Edmund Blair)