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| A natural gas storage facility in Bierwang, Germany. (Source: AP) |
European gas markets have been volatile in recent months due to extreme heat, maintenance work at gas plants and strikes at major liquefied natural gas (LNG) facilities in Australia.
Australia plays a major role in the global LNG market, with most of its exports going to Japan, China and South Korea, but experts say disruptions caused by strikes could see Asia and Europe compete for LNG from other suppliers.
“Concerns about the imbalance between gas supply and demand have dominated the market,” said energy analyst Ana Maria Jaller-Makarewicz at the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based research organization.
The combination of lower gas consumption and Europe filling its storage facilities ahead of schedule has prevented prices from spiking to unusually high levels, she said, but Europe should brace for market volatility in the coming months.
“The gas market is becoming riskier. Gas and LNG prices are increasingly volatile and heavily influenced by global factors,” Jaller-Makarewicz stressed.
Uncertainty about future events can affect gas supplies. As seen in last year's events in Europe, the only way importing countries can mitigate that risk is to reduce their internal consumption."
In August, the Dutch Transfer Facility (TTF) central gas price was below 37 euros per megawatt hour (MWh). This is significantly lower than the peak price of 340 euros per MWh in August 2022, but is still more than twice as high as in the same period in 2019.
The European Union (EU) has achieved its target of filling 90% of its gas storage capacity, ahead of a November 1 deadline. This puts the 27-member bloc in a relatively strong position to meet gas demand in the coming winter.
The latest data compiled by the European Gas Infrastructure Agency (GIE) shows that storage levels at EU underground facilities are on average nearly 94% full.
However, the International Energy Agency (IEA) still warns that even "full" storage facilities do not guarantee against unexpected situations.
In its gas market report released on July 17, the IEA said: “A cold winter, combined with Russia’s suspension of pipeline gas supplies to the EU starting October 1, could easily increase price volatility and market tensions.”
The agency's warning came as the 27-nation bloc continued to ban imports of Russian fossil fuels after Moscow launched a special military operation in Ukraine.
Analysts at political consultancy Eurasia Group fear there will be “real disruption” to European markets.
The gas market is “very volatile” and difficult to predict, said Christyan Malek, head of oil and gas equity research at JPMorgan.
“The EU will reach 95% of its gas storage capacity by the end of this year and 50% by March next year. That means we have a pretty good ‘buffer zone’. But if this winter is very cold, the 27-member bloc will have problems,” he said.
Florence Carlot, an energy market analyst at Arthur D. Little, a consultancy, agreed: “With low demand and adequate reserves, the situation will be good as winter approaches. But the EU will not be spared from the cold winter, which will again affect the gas supply chain.
A combination of supply disruptions such as strikes in Australia, Russia cutting energy exports or low temperatures could lead to a strong reaction in the energy market.”
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