Europe’s Energy Crisis Is Driving Up Natural Gas Prices Worldwide
Natural gas prices all over the world are surging amid a perfect storm of tight regional gas markets and soaring power prices in Europe.
The natural gas rally is not over yet, and it has further room to hit fresh record highs, especially if the coming winter turns out to be colder than typical in the Northern Hemisphere.
The natural gas crunch and the sky-is-the-limit rally in electricity prices are most evident in Europe. But the increased interdependence among regional gas markets in the US, Asia, and Europe in recent years now means that natural gas price spikes in one region cannot be ignored by the markets in the other regions.
As the Northern Hemisphere prepares for the coming winter, analysts say that weather will be the most important factor for natural gas prices and markets in the next few months. And if it’s colder than usual, Europe will not be the only one to feel a hot rally in energy prices.
The gas supply crunch in Europe is “going to put the focus on this commodity that’s been overlooked for the last several years,” John Kilduff, partner with Again Capital, told CNBC this week.
A Perfect Storm In Europe Even Before Winter
Europe’s tight gas market, low wind speeds, abnormally low gas inventories, and record carbon prices have combined in recent weeks to send benchmark gas prices on the continent and power prices in the largest economies to record highs.
Almost daily, gas and power prices in Europe surge to fresh records, putting pressure on governments as consumers protest against soaring power bills ahead of the winter heating season.
With just two weeks to go until the end of the injection season, natural gas inventories in Europe are at their lowest level for September in recent memory.
This makes the market anxious about a dramatic supply crunch if this winter is anything like last winter, when temperatures were below norms for extended periods of time and a cold snap in the spring-depleted stockpiles.
Those inventories could not be adequately replenished, as demand in Asia has also been strong, while supply in Europe has dropped due to lower deliveries from Russia.
During the summer, even with the strong rebound in European natural gas demand and surging prices, Russian giant Gazprom did not book additional entry capacity to Europe via Ukraine.
Analysts say that this could have been an opportunistic move from the Russian giant to drive up Europe’s gas prices further and take advantage of the high prices.
Other analysts think that Gazprom’s effective reduction in supplies would force Europe to recognize that gas customers on the continent need the controversial Nord Stream 2 pipeline to Germany, which bypasses Ukraine.