Falling prices, ports congested with LNG carriers: after months of energy crisis and the hunt for alternative supplies of natural gas to compensate for the drop in supply from Russia, is Europe finally out of the woods? No, say several analysts.
For more than a week, traffic jams of LNG carriers – these ships that transport liquefied natural gas (LNG) – have been clogging up Spanish ports, as if Europe could no longer absorb more gas.
According to the operator of the Spanish gas network Enagas, this situation should continue “at least until the first week of November”.
The Dutch TTF, the European benchmark for natural gas, is currently trading close to its lowest level since June. It even fell temporarily below 100 euros per megawatt hour (around C$135) at the end of October.
Its price has fallen by more than 60% since its surge in August, after the interruptions of Russian deliveries via the Nord Stream gas pipelines which had panicked the markets.
The TTF contract for immediate delivery even briefly fell into negative territory last week, a first since October 2019. The same is true in the United States, where gas prices have collapsed.
These developments contrast with the stratospheric surge in gas, reaching close to 350 euros per MWh in Europe in March, after the start of the Russian invasion of Ukraine in February.
Since then, Europe has struggled to fill its reserves to reduce its dependence on Russia as much as possible, running behind alternative sources, calling crisis meetings and calling for energy sobriety.
High temperatures
The strategy has paid off, with EU storage levels now exceeding 90%.
“Since the first quarter of 2022, the European Union has benefited from a very strong influx of LNG mainly from the United States”, explain the brokers of Marex.
If Georgi Slavov, of Marex, affirms that Europe is indeed at a stage of excess supply of gas compared to demand, “it is premature to declare victory”, he warns however.
The current lull is the result of several favorable factors. Abnormally high temperatures for the season reduce heating needs, and therefore gas.
“The economic slowdown” and “the restrictions imposed on gas consumption” go in the same direction, argues the analyst, interviewed by AFP.
A cold winter and an industrial recovery at full capacity could therefore quickly turn the tide.
“The continent is not out of the woods,” adds Nikoline Bromander, analyst for Rystad Energy. “With Russian flows continuing to decline, the winter of 2023 will be even more difficult.”
The price of European natural gas is still moving at a very high level, up more than 80% since the start of the year.
Well-known phenomena
“The price curve is not going to settle in negative territory,” assures AFP Eli Rubin, of EBW Analytics Group.
Such a situation had happened before with U.S. crude, at the height of the COVID-19 pandemic, when demand collapsed, causing supply gluts and then a frantic scramble for storage.
WTI prices had then plunged into the negative, investors being ready to pay not to end up with barrels on their hands.
But in gas, “we are talking about short-term imbalances between supply and demand which have an effect on short-term prices”, insists Mr. Rubin, especially concerning immediate delivery.
The same thing in Spain, where tanker traffic jams are a “bottleneck”, but not a fundamental imbalance between supply which has become too abundant in relation to demand.
This phenomenon takes place “every year” at the approach of winter, confirms Vincent Demoury, general delegate of GIGNL (International Group of Liquefied Natural Gas Importers), and remains localized off the coast of Spain.
The country has six LNG ports, more than any other European country, where 108 ships are welcomed each week. Spain also has 44% of the European Union’s total storage capacity, according to Enagas.
According to Mr. Demoury, the fall in gas consumption and the high stocks for the winter mean that there are no longer “slots available in Europe in November” to unload ships.
LNG carriers are thus transformed into temporary floating storage “waiting for consumers to need gas and for prices to be more attractive”.