There is discord in Europe: some countries urgently want to reconcile with Russia; others want to buy gas from Nigeria. All this has a strong impact on the European gas market. 

Natural gas market news – market situation

The European gas market has been shaking for many months now, but as we approach autumn the panic is getting worse. While Russia is sorting out problems with the delivery of the turbine for Nord Stream, the EU countries are actively looking for an opportunity to fill their storage facilities and at the same time convince their citizens that they should heat their apartments less in winter. And while citizens will be left with no alternative, the industrial enterprises still need energy to operate. 

Against this background, European politicians are actively looking for a way out of the situation they have created. They realize that they will not be able to reduce gas consumption. This is the opinion of a lot of countries, which demand preferences and do not want to meet the requirements of the EU authorities to voluntarily reduce gas consumption by 15%. According to the Financial Times, it is necessary to cancel such a requirement for at least five countries of the bloc. 

Most countries of the European Union have already begun to save money on everything. In France, they are intensifying measures to save electricity – they will restrict light advertising and prohibit stores with air conditioners to keep their doors open, said Minister of Energy Transformation Agnès Pannier-Runache. 

All new proposals to diversify supplies, even the most exotic ones, are in circulation. For example, Matthew Baldwin, deputy director general of the European Commission’s energy department, said that the EU is looking to arrange additional gas supplies from Nigeria. Baldwin said that the EU imports 14% of its total LNG supplies from Nigeria, and there is the potential to more than double this figure. 

Oil and gas production in Nigeria is limited by theft and pipeline vandalism, leaving the terminal of gas producer Nigeria LNG Ltd. on Bonny Island operating at 60% capacity. But if supplies rise to at least 80 percent, it will make Europe feel more secure. 

Hot and cold weather will continue to weigh on the natural gas market

Gas market prices in Europe rose to $1,700 per 1,000 cubic meters last week. The Nord Stream 1 pipeline is up, and running, but it is pumping about 40 percent of its operating capacity, roughly the same as before the shutdown for maintenance. The Siemens turbine has not yet arrived in Russia, which leaves some risk of further low pumping. 

Europe’s UGS capacity was 66.24% as of July 23, increasing by 3.7% over the week. EU members oppose the EU’s demand for a 15% reduction in gas consumption. Germany raised its gas storage target to 95% for the Nov. 1 state. 

In the US, the Henry Hub (CME futures) gas price continued to rise to $8.299/mmbtu ($297 per 1,000 cubic meters) amid a supply shortfall due to accidents, seasonally higher consumption and high export demand. Natural gas inventories in U.S. natural gas storage facilities continued to grow, but the rate of growth slowed significantly due to rising consumption. On a year-over-year basis, storage inventories as of July 15 remained 10.1% below year-ago levels and 12.09% below the level of the past five years. 

The price of natural gas in Asia on a JKM basis fell slightly to $38.09/mmBTU, or $1,460 per 1,000 cubic meters. Japanese and Taiwanese buyers are once again entering the spot natural gas market with purchases for the coming winter. Japan’s LNG imports for the first six months of 2022 were 3.5% lower than in the same period in 2021. China has also reduced purchases due to coronavirus restrictions. 

The oil and gas markets will remain tight in the near term. Prices will directly depend on the supply situation, but they are not expected to ease any time soon. Demand will continue to rise with the coming hottest summer month (August), and gas pumping into storage facilities will increase pressure on the market. 

Pressure from both sides will stabilize the price 

The European gas market showed a slight increase on Monday, from $1,690 to 1715 per 1000 cubic meters. It continues the recent technical correction after a slight drop from $1,900 to $1,500 at the start of last week. 

The natural gas market price is under pressure from opposing strong factors. Its marked “descent” for energy carriers after the June panic is connected not only with the current conjuncture, but also with the growing fears of the impending recession in Europe and the USA. At the same time, high inflation (8.6% in the eurozone and 9.1% in the United States) and higher central bank interest rates are hindering economic growth. 

The eurozone is in a tricky situation, with prices rising from 8.6% to 8.7%. This could be perceived as an increase in inflationary expectations, which would also affect the growth of gas prices. Its price, by the way, is also supported by previous fears of a physical shortage of gas for autumn-winter in Europe due to insufficient supplies. 

Thus, the combination of multidirectional, strong and little predictable drivers of gas quotations will keep them in the same established range of $1,500-1,900 this week.