Liquefied natural gas (LNG) storage units at Grain LNG importation terminal, operated by National Grid Plc, on the Isle of Grain on August 22, 2022 in Rochester, England.
Dan Kitwood | Getty Images News | Getty Images
Experts in the energy sector anticipate that the bullish trend in European natural gas prices will endure in the coming months. This comes after futures experienced an almost 40% surge on Wednesday.
The fear of potential supply disruptions in Australia caused the front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a leading European benchmark for natural gas trading, to reach its highest level since mid-June. However, the price later receded after hitting an intraday high of over 43 euros ($47.4) per megawatt hour. It is currently trading at around 36.6 euros.
Meanwhile, gas futures for September delivery on the New York Mercantile Exchange rose 6.6% on Wednesday to settle at $2.96. This marked their best daily performance since mid-June and the highest closing price since early March.
The surge in gas prices was triggered by reports of a potential strike at major liquefied natural gas (LNG) facilities in Australia. Workers are demanding higher pay and improved job security. Zongqiang Luo, a gas analyst at energy consultancy Rystad Energy, explained that the spike in prices reflects the likelihood of the strike occurring. The strike could impact LNG supplies during the ongoing heatwaves, despite sufficient gas inventories in Europe.
Luo further noted that the strike could disrupt roughly half of Australia’s LNG export capacity, leading Asian buyers to seek alternative LNG sources. China and Japan, for instance, combinedly purchased 26 million metric tons of Australian LNG in the first half of the year, accounting for over 60% of the country’s exports during that period.
“Looking ahead, we expect the bullish outlook for gas prices to continue with reduced LNG imports to Europe, planned maintenance for Norwegian pipelines, and ongoing heatwaves in various regions globally,” said Luo.
‘Possibility of a Shortfall’
The spike in gas prices in Europe occurs as the euro zone seeks to reduce its dependence on Russian fossil fuel exports following Russia’s full-scale invasion of Ukraine.
John Evans, an analyst at brokerage PVM, cautioned that despite countries like Germany securing significant gas deals with other nations, there is still a possibility of a shortage and a return to spot buying, as seen in 2022.
“Australia has surpassed Qatar and the US to become the top LNG exporter, but issues with production and compromised gas fields have raised concerns among European buyers regarding supply security. They have resorted to tank filling from the cash market before winter arrives,” explained Evans in a research note.
Evans also highlighted the extension of a force majeure declared in Nigeria last October, which has contributed to tightness in the LNG market. Flooding has hampered the recovery of production in gas fields.
“For now, there don’t appear to be any significant disruptions in the energy sector that could undermine this rally,” he added.
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