the price of gas down sharply, but it’s only a short respite

Temperatures above normal for the season, storage sites almost full to the brim almost everywhere in Europe, industrial production lower than expected, with the economic slowdown. All the ingredients are in place for gas prices to fall.

On the Dutch TTF index, which serves as a benchmark on the natural gas market in Europe, the megawatt hour (MWh) fell on Monday, October 24, below the €100 mark, for the first time since June. This decline continued on Tuesday, October 25: for a delivery in November, the MWh is bought at €93.

At the end of August, the TTF had climbed to €342.005 per MWh, during the explosions observed on the Nord Stream gas pipeline under the Baltic, i.e. €3 less than the historic record reached last March, a few days after the start of the Russian invasion of Ukraine.

The drop is therefore very significant, even if the price remains twice as high as a year ago.

A lot of liquefied natural gas (LNG) arrives in Europe

But nothing says that the current trend will continue. Analysts are even convinced of the contrary, because of the very sharp reduction in Russian gas deliveries to Europe, which will undoubtedly continue next year. It now represents only 9% of European consumption, compared to 45% on average in 2021, with 155 billion cubic meters. For delivery on the French market next year, the gas price for 2023 is also around €140/MWh.

So far, Europe has been able to largely offset Russian gas with imports of liquefied natural gas (LNG). But the exercise has its limits, even if LNG production should reach the record level of 500 billion cubic meters in 2022, led by the United States, Qatar and Australia. Over the first six months of the year, US shale gas exports to Europe tripled.

But it is difficult to do much more, for lack of sufficient port infrastructure to accommodate the LNG carriers and heat the molecules before reinjecting the gas into the network. Europe currently has 24 terminals, and several are planned, notably in Germany, but will not see the light of day for two years, at best.

The European Union wants to cap prices

The fall in gas consumption in Asia, linked in particular to production shutdowns in China given the anti-Covid strategy, also explains the fact that so much LNG has been able to land in Europe, where prices are higher because higher demand. During the first half of 2022, the United States exported 68% of its LNG to Europe, compared to 34% last year.

However, the market could tighten in the event of an upturn in economic activity in Asia. In the United States, voices are also being raised to demand fewer gas exports, in order to lower prices on the domestic market.

Finally, there remains a great deal of uncertainty about the decisions that could be taken by the European Union in terms of capping gas prices and the policy of group purchases for approximately 15% of volumes. Opinions differ on the effects this could have.

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