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European gas markets are taking a sigh of relief after aggressive purchasing for LNG cargos and piped gas see storages filled faster than EU targets, Rystad Energy Senior Analyst Wei Xiong said in a market note sent to Rigzone on Wednesday.
Europe is in full bunkering mode and taking no chances with Russian supplies heading into the winter, according to Xiong, who noted that European gas prices this week recorded their biggest drop since April “as healthy storage levels in Germany and the rest of the continent in part soothed supply concerns over maintenance on the Nord Stream 1 gas pipeline from Russia”. Xiong warned, however, that a risk remains that flows may not return on schedule.
“TTF front-month prices plunged 20 percent on 29 August to €272 ($274) per megawatt-hour (MWh) – or $79.9 per million British thermal units (MMBtu) – following Germany’s announcement of faster-than-expected gas injections in the country, partly offsetting upside from upcoming Nord Stream 1 maintenance,” Xiong stated in the note.
“This marks the biggest retreat in TTF since April, after it reached a record high of around $100 per MMBtu last week. Prices dropped further to €261 per MWh – or $76.7 per MMBtu – at the time of writing,” Xiong added.
Germany’s underground storage is nearly 83 percent full, Xiong outlined, adding that the country expects its gas storage to reach 85 percent fullness by early September ahead of a previous target of October. Europe’s overall storage levels are also healthy, according to Xiong, who highlighted that these levels have reached an average of 80 percent full, “which was the 1 November target”. Gas storage in Europe was only 66 percent full in the same period last year, although the cost would have been significantly lower, Xiong noted.
“The ahead-of-schedule injections are providing some relief on the concerns about Russian supply disruptions,” Xiong said.
“The risk to European winter supplies remains, however – given low transmissions from Russia and intensified maintenance of Nord Stream 1, storage levels could be vulnerable,” Xiong added.
“On the other hand, Europe may face competition from Asian importers when winter approaches. Asian countries have been staying away from spot markets to avoid high import costs but could return to spot buying to meet peak winter demand in the case of cold weather,” Xiong continued.
The Rystad analyst went on to note that storage withdrawals in Europe will also largely depend on winter temperatures.
“If spring arrives late, there could be a risk of low storage levels and supply tightness in March and April,” Xiong said.
August Most Expensive Month Ever for Power in Europe
In a separate market note sent to Rigzone on Wednesday, Rystad Analyst Fabian Ronningen said it was confirmed that August was the most expensive month ever for power in Europe on the back of surging gas prices.
“European policymakers are now considering market intervention to curb the skyrocketing prices and protect European private consumers and businesses,” Ronningen said in the note.
“European electricity prices accelerated further over the last week, and it’s now clear that August will be the most expensive month ever for electricity in all major European markets,” he added.
“The fresh record from July was crushed in Italy, France, Germany, and the UK, with Italy being the first market ever to record a monthly average spot price above EUR 500 ($501) per MWh, as the average for August was EUR 547 ($548),” Ronningen continued.
The Rystad Analyst noted that the futures market has also been incredibly volatile, with both German and French front-year trading above EUR 1000 ($1002) on Monday.
“However, the downward price movement since then has been extreme, and on Tuesday 30th of August, the German front-year closed at €599 ($600), a massive 41 percent decline since the intraday peak on Monday,” Ronningen said.
“Once again, the downward movement is mainly caused by a similar movement in the gas market. Very healthy storage levels across Europe, as well as fears of market intervention by the European Commission, have contributed to the large downward movement,” he added.
