Natural gas: Big weekly price drop after cap deal

The agreement at the meeting of EU energy ministers to impose a cap on natural gas last Monday was accompanied by a significant reduction in prices in the following days.

The European benchmark price for January delivery on the Amsterdam market (TTF) fell from €134 last Thursday, December 15, to €85 on Friday, December 23.

For six consecutive days, prices fell, recording a total drop of almost 50 euros or 37%, while the drop amounted to 26% on a weekly basis. At current levels, the price of natural gas is 95 euros lower than the ceiling of 180 euros agreed in Brussels.

Although the drop in prices in the previous period is attributed by market players to a confluence of factors, such as:

• the increased supply due to imports – record liquefied natural gas (LNG) and large wind power production in Germany;
• of subdued demand due to unseasonably high temperatures in Northern Europe this week and
• the high occupancy of gas storage tanks,

The ceiling created a sense of security in the markets that the extreme high prices of August and September would not be seen again. In this two-month period, prices were higher than 180 euros for a total of 40 days, with painful consequences.

How the ceiling is activated

In order for the ceiling to be activated, the price of the TTF reference index must be higher than 180 euros for three days and, on the other hand, exceed the price of the contracts for LNG supply by 35 euros during the same period.

The second condition was put in place to ensure that Europe would be able to attract LNG cargoes and thus entertain the concern expressed by Germany and other countries.

The ceiling will be valid for 20 days, but it will also be possible to suspend it if there are risks to securing the necessary supplies.

The European Commission will be able to decide on its suspension, if conditions are met, such as:

• gas demand increases by 15% in one month or by 10% in two months,
• LNG imports are significantly reduced or
• the trading volume on the Amsterdam Stock Exchange decreased significantly compared to the corresponding period last year.

Returning to the reasons that pushed prices down this week, it should be noted that German wind generation is expected to average over 30 GW next week, or about 50% above normal levels , according to the Norwegian energy information company, Montel.

Above all, however, it should be noted that LNG imports set a new weekly record and were higher than 4.4 billion. cubic meters of last week, while December is expected to record a monthly record, with imports exceeding 18 billion. cubic meters.

Additionally, gas storage capacity in Europe was last at 83%, only slightly below last week’s 85% but well above 57% a year ago.

RES-EMP

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