Aerial view of the LNG storage and vaporization vessel “Höegh Esperanza” at the Wilhelmshaven LNG terminal.
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Energy analysts are warning of more gas market volatility and higher prices as Europe races to prepare for another winter heating season.
European gas markets have been constantly fluctuating in recent months, owing to extreme heat, maintenance at gas plants and, most recently, industrial action at major liquefied natural gas (LNG) facilities in Australia.
Workers at U.S. energy giant Chevron’s Gorgon and Wheatstone natural gas projects in Western Australia went on strike last week, after a protracted dispute over pay and job security. Work stoppages of up to 11 hours are scheduled to continue through to Thursday, at which point the action is poised to ramp up to a total strike of two weeks.
At present, no further talks are scheduled to resolve the dispute, exacerbating fears that a prolonged halt to production would squeeze global supplies.
Australia is a major player in the global LNG market — and even though most of its exports are destined for Japan, China and South Korea, disruption from the strikes is likely to result in Asia and Europe competing for LNG from other suppliers.
The uncertainty of future events that could affect gas supply makes it extremely difficult to predict how the supply and demand could be balanced and how much prices could escalate by.
Ana Maria Jaller-Makarewicz
Energy analyst at IEEFA
The front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for natural gas trading, traded 7% higher on Monday afternoon at 36.95 euros ($39.6) per megawatt hour. The TTF contract rose to around 43 euros last month amid fears of strike action.
“The fear of an unbalanced gas supply and demand seesaw has dominated markets,” Ana Maria Jaller-Makarewicz, energy analyst at the Institute for Energy Economics and Financial Analysis, a U.S.-based think tank, said in a research note.
She said the combination of lower gas consumption and Europe filling up its storage facilities ahead of schedule had helped to prevent gas prices from skyrocketing to last summer’s extraordinary peak of 340 euros.
However, given the uncertainty over how the situation in Australia will unfold, Jaller-Makarewicz said Europe should brace itself for more volatility and an increase in prices.
“Gas markets are becoming riskier — gas and LNG prices are increasingly volatile and greatly affected by global factors,” Jaller-Makarewicz said.
“The uncertainty of future events that could affect gas supply makes it extremely difficult to predict how the supply and demand could be balanced and how much prices could escalate by. As seen in last year’s events in Europe, the only way that importing countries can mitigate that risk is by reducing their internal consumption,” she added.
‘Very volatile’
The EU reached its target of filling gas storage facilities to a 90% capacity roughly 2 1/2 months…
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