Gas prices in Europe aim for $2000 per 1000 cubic meters

Gas spot prices in Europe briefly surpassed $1766 per 1,000 cu.m. on the morning of December 20. It is about January futures on the Dutch TTF hub. Compared to Friday, the growth amounted to about $140 per 1000 cubic meters, according to data from the ICE exchange. Later in the day, the price fell to hover around $1,700 per 1,000 cu m. The next rise in spot prices took place amid the news about the low volumes of Gazprom’s transit capacity bookings. The day before, the Russian supplier has booked one day in advance the smallest transit capacity in a month through the Yamal-Europe pipeline and only bought 3.8 million cubic meters from Poland out of the 89.1 million cubic meters put up for auction, Interfax reported citing the GSA Platform reservation platform. In addition, the company has reserved only 19.26 million cubic meters of gas per day out of the 89.1 million cubic meters offered for pumping through Poland in January next year. “Gazprom also did not buy additional Ukrainian transit capacity at all. Gazprom said that deliveries through the Yamal-Europe pipeline are carried out in accordance with consumers’ requests and the company fully meets its obligations. Abnormally high gas prices in Europe have been held since early autumn. Their peak was in early October, when spot quotations were close to $2000 per 1000 cubic meters. Later on, the prices went down to a certain extent after Russian President Vladimir Putin in late October instructed Gazprom to start to fill up its underground gas storages (UGS) in Europe. Last week, the prices started to grow again after a number of statements made by the German officials, which created a negative information background. For example, on December 16, the head of German Federal Network Agency (Deutsche Bahn) Jochen Homann said that the issue of certification of Nord Stream 2 AG as the operator of the pipeline may not be resolved in the first half of 2022. Against this background, spot prices at the Dutch TTF hub jumped more than $120. Nord Stream 2 AG then said it was beginning the process of filling the second string with gas to maintain the required volume and pressure in the pipe. Filling of the pipeline’s first string with gas had already started in mid-October. The key factor determining the gas price volatility in Europe is the record-low underground gas storage (UGS) reserves, said Maria Belova, Research Director at Vygon Consulting. All other reasons only strengthen the already existing de facto shortage of reserves and further heat up the market, the expert believes. Currently, the market is under additional pressure by stopping for technical reasons two nuclear reactors at Sivaux NPP in France, which led to the reduction of electricity production by 10%, the expert added. According to Gas Infrastructure Europe (GIE), as of December 18 (latest data) storage facilities in Europe were filled by 60% (64.9 billion cubic meters). At the same time, a year earlier, 86.3bn cu.m. of gas was pumped into storage facilities. According to Belova, volatility may persist until the end of the heating season, and this year spot prices may exceed $2000 per 1000 cubic meters. She also added that if no decision on Nord Stream-2 is made in the first half of 2022, this factor will keep prices above $1,000 per 1,000 cu m even after the end of the heating season. According to Dmitry Marinchenko, senior director in Fitch Ratings’ Natural Resources group, gas prices in Europe in the near future will largely depend on Gazprom’s actions and rhetoric, as well as on weather conditions. Since both of these factors are difficult to predict, strong volatility in the market will remain, the analyst believes. “While the theory that Gazprom will hold back supplies to Europe until the launch of Nord Stream 2 seems tenable, it scares market participants, as does the prospect of postponing the launch of the pipeline,” the expert said. He, like Belova, believes that the period of ultra-high spot gas prices will continue at least until the end of the heating season, and possibly longer.