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US gas helping Europe’s shortfall - will it ease soaring prices?

21:37, 1 July 2022

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Illustration of US gas pipeline networks and infrastructure
Traders watch Europe natural gas prices as EU member states look for Russia commodity replacements - Photo: Shutterstock.

Russia's recent steep cuts in natural gas flows to the EU mean June is the first month in history in which the bloc has imported more US gas via liquified natural gas (LNG) than via pipeline from Moscow.

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That’s according to Dr Fatih Birol, the executive director of the International Energy Agency (IEA) – who also warned on Thursday that a drop in supplies calls for efforts to reduce EU demand and prepare for a tough winter.

“According to Natural Gas Monthly and Energy Information Administration (EIA) estimates for April 2022, the United States shipped 74% of its LNG to Europe during the first four months of this year, compared to an annual average of 34% last year,” Piero Cingari, commodities analyst at Capital.com said.

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Natural gas declines to influence short-term trading?

It comes as the price of US natural gas declined on Friday – after the August contract crashed  $1.074/MMBtu on Thursday in the second-largest daily decline of the past decade. 

“Back-to-back bearish storage reports started the sell-off, but a PHMSA notice to Freeport LNG with a gauntlet of conditions before operations may be restored delivered a bearish body blow that drove gas well below $6.00. Algorithmic traders subsequently extended selling to slip to $5.357 intraday. Although a bounce off lows has subsequently lifted natural gas, technicals suggest a test of support at the 200-day moving average at $5.26/MMBtu before any sustained rebound,” EBW Analytics told Capital.com.

“Weak spot demand over the holiday weekend and trader repositioning after yesterday's precipitous declines are likely to influence short-term trading. Over the next 7-10 days, however, NYMEX futures are likely to reestablish support and move higher as searing July heat rapidly tightens physical market supply/demand balances,” EBW added.

 

Will Europe gas prices continue to surge?

Energy analyst Osama Rizvi of Primary Vision said high European gas prices on the Dutch Title Transfer Facility (TTF), Europe’s price benchmark, will remain high given the current supply constraints.

“We should expect a full-blown energy crisis by the winter that will start from Europe. It will then move towards Asia Pacific. It is happening even now. Due to the fact that Germany is moving towards gas rationing, the Asian countries are finding it hard to procure LNG, as it is headed to Europe now. Pakistan for instance has started to import fuel oil as it could not secure LNG supplies.”

Rizvi also noted that China has reduced its procurement of LNG by 20% – as well as India – and said Australia is also facing its own challenges.

“The price of European gas is surging and will continue to do so. This can have a domino effect especially for developing countries,” he told Capital.com on Friday.

At the time of writing, the price of natural gas on the TTF was at €147.5 per megawatt hour (MWh) on the July intraday chart on Friday – up by roughly €8 on the previous day. However, for comparison, the price was at €83.40 MWh on 13 June.

Meanwhile, analysts at Trading Economics think gas prices on the TTF will trade at €195.37 MWh in 12 months time.

 

Europe’s scramble for natural gas alternatives

Dr Birol also told Capital.com in June about European supply concerns and warned then that some European countries may be forced to ration natural gas in the months ahead.

“We are in the middle of the first global energy crisis,” Dr Birol said. 

“It is felt everywhere around the world, but the most in Europe as Europe was the main buyer of Russian energy – oil, gas, coal and others. This crisis will not be over, I’m afraid, anytime soon – and we have to take some measures to push this crisis back. One of the key measures is to use energy much more efficiently – in the transportation sector, homes and in the industrial sector,” he previously told Capital.com.

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