MOSCOW, July 31 — The average monthly settlement price of gas on the European stock exchange in July jumped by almost 50 percent – from 1180 to 1805 dollars per cubic meter, follows from calculations based on data from the London ICE exchange.
At the same time, futures on the TTF hub index (with the nearest delivery in August and September) traded during the month in the range from $1,530 to $2,385, although their prices did not exceed $500 a year earlier.
“The current price level is caused by a complex of factors, among them the decline in supplies from Russia and the uncertainty with the prospects for their recovery,” explained Alexander Amiragyan, head of the Economics of Fuel and Energy Complex department of the Center for Strategic Research.
The hot weather in Europe also contributed to the rise in prices, and the reduction in energy generation from alternative sources also contributed.
In mid-spring and early summer, the situation on the gas market escalated. Some European companies did not agree to the scheme proposed by Russia for paying for fuel in rubles, and since the end of April Gazprom has stopped deliveries to the Bulgarian company Bulgargaz, the Polish PGNiG, the Finnish Gasum, the Dutch GasTerra, the German Shell Energy Europe and the Danish Orsted. Pumping along the main routes – Nord Stream and the Ukrainian gas transportation system – has been greatly reduced, and through the Yamal-Europe gas pipeline it has stopped.
“In the event of a low level of supplies from Russia, one should not expect a decrease in gas prices in Europe, since alternative supply routes in the short term will not be able to compensate for the falling volumes of Russian gas,” Amiragyan suggested.
The rise in prices in the last days of July (up to almost $2.4 thousand per thousand cubic meters) is associated with news about the need for new restrictions on Nord Stream due to scheduled repairs of turbines, Dmitry Skryabin, portfolio manager at Alfa Capital, added.
Ronald Smith, Senior Analyst at BCS Global Markets, said that the European gas market is now facing a fundamental shortage of supply, and demand is not very sensitive to price fluctuations. If two thousand dollars per thousand cubic meters is not enough to reduce demand or attract even more LNG, then there is no reason to think that two and a half or three thousand dollars will do this.
“Thus, wholesale prices can rise significantly, especially when it starts to get colder at the end of October and the demand for heating grows,” he concluded.
A further increase in gas prices may occur if competition between European and Asian consumers for liquefied natural gas increases or if tensions remain with supplies from Russia, Amiragyan stressed.
Scriabin agreed with his opinion.
“The price in the European Union is very sensitive to expectations of the volume of Russian gas supplies, so the price dynamics will be determined based on the supply situation,” he said.
The analyst suggested that in the event of a sharp restriction of Russian supplies, prices could jump “much higher than even historical highs.” But this effect will be short-lived, as European consumers – primarily industry – will be forced to drastically reduce the physical use of gas, he said.
So far, many consumers have been shielded from rising prices by government intervention and subsidies, effectively passing the cost on to all taxpayers, Smith added. However, this cannot continue for long. This year, consumer prices will rise significantly across Europe, which will almost certainly lead to both a decrease in gas use and an increase in dissatisfaction with national governments, the expert concluded.