Mon. Jan 24th, 2022

European gas prices fell further on Thursday, continuing a recent sell-off as unusually moderate weather limited demand and fresh supplies of fuel heading to the region.

In thin holiday trade, gas futures linked to TTF, Europe’s wholesale gas price, fell as much as 12 per cent to € 84.90 per megawatt hour when tankers transporting liquefied natural gas – originally destined for Asia – arrived in Europe.

These vessels were redirected earlier this month by traders to earn record prices, which hit more than € 180 per megawatt hour in the run-up to Christmas due to waning confidence in extra Russian supply.

Alex Froley, LNG analyst at consulting firm ICIS, said gas carrier LNG Rosenrot left the U.S. on a course to China, but changed direction on Thursday and went to the Netherlands.

“Mild weather and increased LNG flow have helped pull prices lower over the past week,” he said. “However, if there are periods of cold weather in Europe or Asia in the remaining months of winter, the market could still turn around.”

In the UK, the wholesale gas price fell by 10 per cent to 210 pence per term on Thursday, extending losses from last week’s record peak of 450 pence per term to more than 50 per cent.

Despite the declines, European gas prices are still rising by more than 350 percent this year, increasing energy bills for households and industries across the continent and contributing to inflationary pressures.

Line graph of € per megawatt hour as European gas prices plunge after reaching record levels

Kaushal Ramesh, senior analyst at Rystad Energy, said the market in Europe was more “balanced” due to at least 800,000 tonnes of LNG distributed across 11 tankers shipped from Asia to Europe.

However, he said gas markets were “not out of the woods yet” with flows on a major pipeline between Russia and Europe in reverse mode for a week and a half.

“LNG diversions from Asia are a useful stop-gap measure, but are not a sustainable substitute for stable pipeline supplies,” he said.

More than a third of the EU’s gas supplies come via Russia’s pipeline, but this year inflows have fallen. Russia’s state-run Gazprom has refused to sell additional volumes to Europe other than those covered by long-term contracts.

Some European politicians and industry experts have accused Russia of withholding supplies to pressure EU leaders to approve the controversial new pipeline Nord Stream 2.

Gazprom has repeatedly rejected these claims. The company said at the weekend that accusations of low gas supplies to the EU for manipulating prices were “lies and falsehood”.

As well as mild weather, demand for gas has also shrunk by some of Europe’s largest energy users, limiting production at factories and smelters due to rising power prices.

The American industrial group Alcoa said on Wednesday that it will end primary aluminum production at its San Ciprian smelter in Spain for two years due to high energy costs. For the same reason, Norsk Hydro on Thursday announced plans to reduce capacity at a plant in Slovakia to about 60 percent of capacity.

With gas storage levels across Europe well below seasonal averages, traders expect gas and power markets to remain volatile for months.

Germany is on track to close three of its last six nuclear power stations on Friday as it switches to renewable energy, while France could face power shortages in the event of a cold snap next month when a large number of nuclear reactors stop for maintenance. country’s power network operator Thursday warned.

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