Gas futures prices, the cost of future contracts for natural gas supply over the next few months, are set to remain high and even increase by the end of the year. Analysts from financial news agency Bloomberg now fear that the European gas crisis is far from over.
Prices on the Dutch TTF Natural Gas Futures market in December stood at €60 per megawatt hour in December. For the month of March and during the non-peak summer gas months, futures are around €54. Despite being much lower than in August 2022, these prices remain far higher than the historic average prices for this time of year.
Gas prices are currently benefiting from a period of mild weather and Europe filled its gas reserves for the winter months. In recent months, Europe has massively increased its imports of liquified natural gas (LNG), which have helped to taper gas prices after Russia turned off pipeline gas supplies.
While these factors have contributed to a significant decrease in gas prices, Bloomberg warns of worse to come. Maintaining high levels of gas storage throughout the summer whilst simultaneously finding alternative gas sources will be a major challenge and the European Commission will consult with Member States in the coming weeks on the possible extension of gas-saving measures.
Competition with Asia
The growth in demand for gas in the Asian market is likely to put pressure on gas traders to secure affordable LNG, which is both more costly and inefficient than pipeline supplies.
Asia has long been the main market for LNG products, with many developing economies reliant on the fuel being affordable. Despite a dip in demand last year (owing to China's winding down of production facilities as it applied strict Covid-19 restrictions) , Asia’s demand for LNG is rapidly rising.
As China’s demand for energy grows in 2023, the Asian market will be increasingly pitted against Europe, driving up prices.
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“Prices seem likely to remain structurally higher than before the Russian invasion,” warned Henning Gloystein, Director of Energy for the Eurasia Group. “New regasification capacities, for example in Germany, Italy and the Netherlands, will prevent serious shortages, but the higher cost of LNG and the risks of sudden price spikes could cause shortages.”
Experts now warn that LNG contracts covering deliveries from 2025 and that the next two winters will be “difficult.”
