The price of European natural gas soared by almost 40% on Wednesday, as traders who bet on further price drops were scared off by the possibility that global LNG supply could be disrupted from Australia.
The price of the Title Transfer Facility (the European benchmark) has risen to over €43 per Megawatt Hour, from nearly €30 Tuesday. This is the highest since mid-June.
Reports of workers in Australia planning to strike for better pay and job security triggered the increase. Market movements were exacerbated when some traders closed out bets on a fall in gas prices.
This move shows that the Energy Crisis, which has been raging the continent for nearly two years, is still not over and that markets are still concerned about the vulnerability in supply.
While Australian LNG rarely flows directly to Europe the EU is increasingly dependent on seaborne cargoes to replace Russian LNG supplies that have been cut off since the Ukraine war.
Analysts say that markets are still wary of potential disruptions in supply, even though gas prices have fallen significantly since last summer’s peaks when the Russian pipelines were cut off and the price of gas soared to record levels above €340/MWh. Callum Macpherson is the head of commodities for Investec. He said that it all depends on the type of winter, which is not known at this time.
Last year, the EU became the largest LNG importer in the world as it had to replace lost Russian pipeline gas. Until recently, Russia met around 40% of the EU gas demand.
Australia is an important supplier of goods to Asia. If the market becomes tighter, it could compete with Europe for cargoes.
“A drop in Australian supplies could lead Asian buyers to buy from other sellers, such as the US or Qatar who are able. . . “Pivot between the markets”, consultancy ICIS stated in a report.
Several similar price spikes have taken place this year. However, they tend to be reversed later in the day. Brent crude, which is the international benchmark for oil, also increased on Wednesday. Its recent gains, caused by Saudi Arabia’s and Russia’s production cuts, reached $87.65 – its highest level since early January.
The central banks may find it difficult to control inflation if energy prices continue to rise.
Gas storage facilities in the EU, which are crucial to meeting winter demand, are close to 90% full. The European Commission had aimed to reach this level by the beginning of November. Traders expect that the storage facilities will reach their full capacity in September.
Analysts at Citigroup stated that, if the Australian strike continued and lasted throughout the winter months, “European Natural Gas could avoid its inventory exceeding storage capacity limits.”
Wall Street Bank added that European prices may double by January and reach €62/MWh if the Australian strikes “start soon and continue until the beginning of winter or even beyond”.