Gas prices in Europe collapse shortly before the cold winter months. Do we suddenly have too much gas? Isn’t there a shortage in winter after all? And what do the falling prices mean for private households? Experts warn against jumping to conclusions.
It was a sight that not many analysts expected: For a very, very brief moment, the gas price in Europe was even negative. On the TTF gas exchange in Amsterdam, the so-called “next hour” spot price for gas briefly fell below zero on Monday. So if you had bought gas for the next hour on Monday, you would have received money for it.
But the problem is: Nobody in Europe needs gas at the moment. The so-called future prices for gas deliveries in November also fell below the mark of 100 euros per megawatt hour on Tuesday. In August, the price was more than 300 euros per megawatt hour.
What’s going on there?
There are essentially three reasons for the sudden drop in prices. First, Europe did better than expected at stocking up for the winter. According to data from the gas storage association AGSI, storage facilities in Europe are already 93 percent full, a historic high for this time of year. In Belgium, the storage tanks are already 100 percent full, in Germany it is already 97 percent. That means: Europe has hardly any space left for replenishment, the gas can no longer find buyers.
Especially since Europe is increasingly relying on LNG, the liquid natural gas substitute. The LNG deliveries from North America, Africa and the Middle East had partially replaced the natural gas volumes that Russia had been withholding from European countries for some time. Since the beginning of the year, the EU countries have been aggressively buying up LNG supplies on the world market in order to fill the storage facilities. However, the infrastructure for such enormous quantities of liquid gas does not yet exist. Germany, for example, will only be able to launch its first own LNG terminals in winter, until then the Federal Republic is dependent on ports in the Netherlands and Poland. The result: LNG ships are damming up in Europe’s waters.
Off the coast of Spain alone, which has a third of all European LNG capacities, there has been a super backlog with 35 LNG tankers waiting for weeks to be able to unload. There is a “disproportion” between the supply and the currently prevailing demand, according to a statement from the Spanish gas network operator Enagas last week. If a ship’s cargo exceeds the currently prevailing gas storage capacities, unloading will be postponed indefinitely. The fact that there is currently no pipeline to transport excess gas to France, for example, exacerbates the Spanish storage problems.
The second factor is the weather: Europe is currently experiencing an unusually warm October. With temperatures of 17 degrees in Berlin and Paris and 26 degrees in Rome and Madrid, many Europeans can do without turning on their gas heating. And thirdly, there is politics: the debates at EU level about a price cap for gas have made the markets cautious, according to analysts. The mere announcement that something would be done led to prices falling, said Economics Minister Robert Habeck (Greens) on Tuesday on the sidelines of deliberations by the ministers responsible for energy in Luxembourg.
So, can Europe avoid a shortage in winter? Weather forecasts assume that November will also be rather warm, which could further depress demand. However, experts warn against jumping to conclusions. “Europe is now in a comfortable position in terms of supplies,” analyst Graham Freedman of consultancy Wood Mackenzie told Bloomberg. “The risks of blackouts or rationing are going down. But the real test comes when we get cold weather.”
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Because: The capacities in the European storage facilities are not sufficient to get through the winter on their own. The reserves in the German gas storage facilities, for example, can cover the needs of the Federal Republic for about two and a half cold winter months, nothing more. This means that Europe will still have to buy natural gas and LNG in winter, at prices that are likely to be significantly higher. While the “futures” on the TTF gas exchange for deliveries in November are less than 100 euros per megawatt hour, deliveries for December and January have already leveled off at 140 euros – and the trend is rising.
“We think that the crisis is far from over,” says an analysis by the British energy management consultancy Timera. Deliveries that could still be important for the winter are already being lost in Europe due to the ship jam at the ports. According to the analysis company Kpler, in Spain the first orders are being canceled because the delivery cannot be unloaded. At least one LNG tanker from Algeria is said to have already changed route in search of better prices – and is now heading for Asia instead of Europe.
However, Europe is expected to live in excess of gas until the beginning of December. However, citizens and businesses will only feel the sharp drop in wholesale prices with a delay, if at all. “This is only good news for consumers in the medium term, because the high prices from last year will still be incurred next year,” said Habeck. And, this is also clear: even 100 euros per megawatt hour is still a high price. In 2020, the “future” price on the TTF gas exchange was less than 20 euros.
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