The European Natural Gas Prices have risen to their highest level since 2024. This is due to a combination of factors, including concerns about supply and a slower than expected storage build.
Fears of disruptions to Russian fuel supplies across Ukraine, despite storage levels being relatively high on the continent, have fueled the rally. Benchmark futures traded above EUR39 per Megawatt-hour at the beginning of August.
Prices have risen for the third day in a row due to concerns over the ongoing conflict in Russia’s Kursk region. This area is home to an important gas intake point.
Prices rise due to supply concerns
Recent price increases have been attributed largely to concerns about disruptions of the Russian gas flow through Ukraine.
Gazprom, the Russian energy giant, announced on Thursday that the gas transit through the Sudzha intake, the last pipeline connecting Russia to Europe via Ukraine, was set at 37.3 millions cubic meters per day. This is down from 42 million cubic metres observed in the past few months.
Sudzha, near the border, is an important point of entry for gas to Europe. Any disruption here could have significant consequences for European energy markets.
Gas flows are still flowing at Sudzha Transit Point, but the slight decrease has caused alarm, especially as fighting continues to rage in the area.
Analysts warn any further increase in prices could push gas supplies into Europe to an even greater extent.
Storage shortages in Asia amid high demand
Storage levels have not increased as fast as expected, despite the fact that EU natural gas storage was over 86% full on August 6, well above the average for five years of 78%.
The main reason for this slowdown is the lower LNG inflows to Europe. Strong Asian demand has diverted cargoes from Europe.
The Asian LNG market is expected to remain robust through 2024. Imports increased by 10.3% on an annual basis in the first seven month of this year.
China and India are the main drivers of demand growth, with 64% of it coming from China.
Due to the higher demand for gas in Asia, the Japan Korea Marker has traded consistently at a premium compared to the Dutch Title Transfer Facility. This is Europe’s largest gas hub. Therefore, it makes more sense to ship LNG to Asia rather than Europe.
Warren Paterson, the head of commodities strategy for ING Think, stated:
The deceleration of storage is expected to support TTF pricing. The projections suggest that EU storage is likely to be near 100% full by the winter of 2024/25, assuming there are no major supply shocks.
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Norwegian pipeline maintenance
Norway is expected to cut its gas flow to the EU due to summer maintenance in August and September.
Analysts warn that any maintenance overruns could lead to a further tightening of the market and, in turn, to an increase in LNG imports to the EU as compensation.
Norwegian gas has become more important to the European market. Any reduction in supply would exacerbate the current imbalance between supply and demand, driving prices higher as winter heating season approaches.
Ukraine transit route
The future of Russian gas pipeline flows through Ukraine is uncertain. Ukraine has indicated that it will not extend its transit agreement with Gazprom at the expiration of this year.
The EU is looking for other supply sources, which has further complicated the market.
EU Energy Commissioner Kadri SIMSON has assured that Austria can import gas from Germany and Italy.
Analysts note, however, that the market will continue to be sensitive to any changes related to these flows as demonstrated by the recent spike in price following reports that Ukrainian forces had captured Sudzha’s entry point.
Speculative Activity
Even though the storage levels are relatively low, speculation is still a major factor in market volatility.
According to energy analyst Paterson speculators remain “stubbornly optimistic” about the European natural-gas market. They hold a large net long position, which is the largest since 2021.
According to the most recent positioning data, the investment funds have a net position of nearly 192 TWh. This is a substantial increase over the net short positions that were held at the beginning of 2024.
Paterson has also stated that Asia will continue to be the leading driver of the global gas market, and that this trend is unlikely to alter as the economies in that region move towards cleaner fuels. The continued demand for gas from Asia and the geopolitical risk in Europe suggest that prices of natural gas may continue to rise in the months ahead.
ING ING Research
Natural gas prices are likely to remain volatile as Europe enters the winter heating season. This is due to a combination of supply uncertainty, high Asian demand and speculative activities.
The market is still on edge. Any further disruptions, or spikes in demand, could lead to significant price increases.
Investors and policymakers need to be on the lookout for these developments in order to navigate the difficult energy landscape that will emerge in the months to come.
This post European Natural Gas Prices Soar to 2024 Highs amid Supply Fears and Slower Storage Builds may be updated as new developments unfold.
