The European gas price has doubled within 10 trading days. This shows that the market is still on edge, even though storage levels are at record highs.
The price of European gas benchmark Title Transfer Facility, or TTF, rose by as much as 27% on Thursday to €49.50/MwH. This is its highest level since April. TTF was trading at a low of €23/MwH, a level not seen in two years.
Market participants are still jittery, even though prices have fallen substantially since last summer when the Russian pipeline cutoff pushed TTF prices to a height of €340/MwH. TTF prices briefly traded below yesterday’s close, before rising 7.3% to €42.80. This highlights the market volatility.
The rally was sparked by reports that the Netherlands will close the Groningen Gasfield this year, once Europe’s biggest single domestic supply source. Meanwhile, forecasts of hotter weather in Norway and longer outages at major fields continue to support the prices.
The supply disruptions have heightened fears that European markets are still adapting to the new reality. Securing seaborne imports are crucial to replace the Russian pipeline supplies which met 40% of EU demand prior to the invasion of Ukraine. Tom Marzec Manser, energy consultant at ICIS, said that the reports of Groningen’s closure add to a number of other positive news stories for gas prices. The price fluctuations are a sign that the gas market in Europe is uncertain and the participants on the market remain on edge.
Hans Vijlbrief (Dutch state secretary for mining) announced in January that Groningen would be closed by October 1, but, if needed, it could remain open up until October 2024.
Groningen Gas’ production was reduced last year to 2.8 Bcm, which is the minimum required to keep the pumps running. Tremors were blamed for causing damage to the property around the gas field.
Storage alone will not be enough to meet the demand for winter gas in Europe. The storage sites are already more than 70% full and on track to reach the 90 percent target set by the EU.
The price of LNG on the Northeast Asian market briefly surpassed the European market, for the first time since the beginning of the energy crisis. This prompted traders to ship cargoes east.
TTF’s premium has been regained over Asian markets with recent price increases, which have re-motivated traders to send LNG into Europe.
We’ll see the competition for LNG again this year, and in future years. Glen Kurokawa of consultancy CRU said that the link between European and Asian LNG prices and markets will be stronger than it was before the Ukraine conflict because Europe is buying more LNG.
Kurokawa, however, said that he didn’t think the competition for LNG this year would be as fierce as it was in 2022. He argued that Europe has cut its gas consumption for “industry” and power sectors compared to last.