Gas prices have returned ten years ago // Fuel in Europe stands as in the best years for Gazprom

Gas prices in Europe, amid hot weather and limited supply, hit their highest since 2018 and an all-time high for the summer. For example, July futures on the Dutch TTF hub exceeded € 30.005 per MWh: previously, such prices in Europe were stable only in 2012–2013. The current surge, in addition to hot weather, is explained by Gazprom’s refusal to increase gas supplies through Ukraine and a decrease in LNG supplies: European consumers are experiencing problems with filling storage facilities, the level of reserves in which remains at record lows.

July gas futures at the TTF hub in the Netherlands exceeded € 30,005 per MW • h (over $ 370 per 1,000 cubic meters) at trading on Monday. The spot price for Tuesday delivery reached € 29.9 per MWh. This is the maximum since March 2018, when the cold front “Beast from the East” for several days increased gas prices in Western Europe to peak values ​​(€ 76 per MWh as of March 1, 2018). However, if we exclude this peak caused by an extraordinary factor, then a similar price level was observed in Europe only in 2012–2013, and then only during the heating season. In those years, the average price of Gazprom for export to Europe was $ 402 and $ 380 per 1,000 cubic meters, respectively (in 2020 – $ 143 per 1,000 cubic meters).

If we take prices in the summer period, when the demand for gas traditionally decreases, then the current quotations even exceed the level of 2008 (then oil, to which most gas contracts were tied at that time, cost more than $ 140 per barrel).

The spike in prices could be attributed to the prolonged heat in Europe and the “double chill” effect – with the pandemic still high in the number of people working from home, while the demand for refrigeration in offices is increasing in parallel.

On the other hand, Gazprom, which is the main supplier of gas to Europe, pending the launch of Nord Stream 2, is not yet seeking to increase gas transit through Ukraine. In addition, a significant increase in demand from China, driven by the reform of the country’s gas market (the country’s LNG imports are expected to grow by 21% by the end of the year), is redirecting LNG flows from Europe to Asia. Thus, exports to Europe in June fell by 13% compared to May.

In addition, according to Gas Infrastructure Europe, gas reserves in European UGS facilities are about 20% below the norm, the current level of reserves is at a record low – 44.68%.

Maria Belova from Vygon Consulting believes that rising gas prices will certainly push consumers to look for economically more attractive alternatives – renewable energy sources or switching to coal in power generation.

Coal, in her opinion, theoretically could quickly regain its previously lost positions in the market, however, the current high emission price (about $ 55 per ton of CO2) reduces the competitiveness of coal, even if it is more attractive than gas. The decision of gas consumers to switch to alternative sources will depend on how long the gas price remains at the current high level, she said.

Tatiana Woodpecker

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