Crisi energetica

Gas prices in Europe at the winter test. What can happen?

For the price of gas in Europe the first cold test arrives with winter now upon us.
Natural gas futures in the Dutch benchmark continue to fall this week to around 44 euros per megawatt hour, a decline of more than 4%.
Abundant supplies have more than offset forecasts of very low temperatures across much of Europe in early December.
Frost is spreading almost everywhere in European countries, with snow forecast from Germany to the United Kingdom and also in Italy.
This sharp weather reversal tests the continent's energy systems in what is the second winter without most of Russia's fuel supplies.
In an uncertain global context, with LNG supplies now dominating European supplies and the fate of economic growth bleak, energy security remains a central theme on Europe's agenda.
Relief for full storage cannot divert attention from potential supply risks and a surge in gas prices.
Gas prices falling in Europe, but cold weather is on the way Freezing temperatures and snowfall are spreading across the continent and energy demand is therefore set to increase.
Berlin and Helsinki are expected to record lows of -4.5C and -8C respectively, and parts of Scotland, North East England and London are also expected to record temperatures below freezing.
Italy itself is already affected by a vortex of cold air.
Looking ahead, forecasts call for cold weather for much of Europe over the next two weeks, although some models suggest a potential rise in temperatures in the north-west from 6 December onwards.
In this context of early winter, the observation focuses on the gas market.
The positive aspect for Europe's energy supply is that current natural gas reserves in Germany and France are almost full and Italy's are above 96%.
The combination of above-normal temperatures and well-stocked storage has avoided the worst so far, with the price of gas remaining fairly under control.
TTF gas has fallen by EUR 31.73/MWh or 41.58% since the start of 2023, although some warning signs have emerged in recent months.
Gas prices increased by 40% between October and November in the European benchmark Dutch benchmark.
Geopolitical volatility has shaken spot markets and growing fears of supply shortages this winter have brought uncertainty back.
While far from last year's highs, prices were almost double the historical average for the time of year.
According to analysts, full tanks do not guarantee enough gas to heat families for the next few months.
In fact, storage is not intended for daily use and Europe's maximum reserve capacity covers less than half of its winter consumption.
As the International Energy Agency states: “large uncertainties remain before the next heating season” and a cold winter, together with a total block of gas supplies to Europe by Russia at the start of the heating season warming, could easily renew tensions on the market and trigger peaks in price volatility.
How much does LNG weigh on the price in Europe Energy remains a concrete and daily challenge for the old continent and the risk of seeing the price of gas increase remains possible.
“Gas markets are becoming riskier: gas and LNG prices are increasingly volatile and strongly influenced by global factors,” writes Ana Maria Jaller-Makarewicz, an energy analyst at the Institute for Energy Economics, in a research note and Financial Analysis.
The issue of liquefied natural gas, for example, is by no means negligible.
EU gas demand in the second quarter of 2023 was 19% lower than the average for the 2019-2021 period, with demand for energy production falling by 17%.
While this has helped the region cope with sharp declines in Russian pipeline supplies, LNG imports have been crucial in filling the gap.
The total share of liquefied natural gas imported into the EU increased from 20% in 2018-2019 to around 40% in 2022-2023, thanks to a rapid infrastructure upgrade.
It should be noted that 13% of LNG imports into the EU come from Russia, whose sea shipments have actually grown since the invasion.
This increase in LNG has made European countries vulnerable to the volatility of that market, especially since 70% of these imports are purchased at short notice.
Last year, exceptionally mild winter weather reduced heating demand in both Europe and Asia.
In addition to the mild climate, an economic slowdown in China has decreased LNG imports while high prices of the fuel have pushed some Asian nations to buy less.
IEA analysts predict that global liquefied natural gas markets will see modest increases in supply over the next few years, and this weak supply growth coupled with strong demand will keep global LNG prices structurally high.
What are your forecasts for the European gas market? Prices may rise or fall from current levels, but the latest model on the evolution of the European gas market during this winter and through 2024 shows an asymmetric upside risk to prices according to the Timera Global Gas Report.
“Downside risks certainly exist in the form of a negative demand shock resulting from a sharp recession, or even just another mild winter and healthy supply volumes,” Timera analysts explain.
According to Moody's analysis, fuel prices in Europe will remain higher than elsewhere.
High gas prices have posed a particular economic obstacle for some European countries – particularly Germany, the region's largest economy – due to their reliance on energy-intensive industries.
Concerns are growing that persistently high energy prices could promote deindustrialization as energy-intensive companies, such as automotive and chemicals, move elsewhere.
Giovanni Sgaravatti, research analyst at Bruegel, a political-economic think tank based in Brussels, believes that an increase in gas prices would further worsen the already precarious state of competitiveness of the energy-intensive European industry and would also result in an increase in electricity prices.
“Countries that are heavily dependent on gas, such as Italy, should increase efforts to install renewable energy and electricity storage capacity to move away from fossil fuels…,” says the expert.
Vincent Juvyns, global market strategist at JP Morgan Asset Management, issues a similar warning to Europe: higher and more volatile energy prices will erode the competitiveness of European industry, weigh on business confidence and slow the normalization of inflation.

Author: Hermes A.I.

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