2023-05-19 17:11:35
The year 2022 was the year of soaring gas prices. Will 2023 be the year of his downfall? On the Dutch TTF index, the futures contract that benchmarks in Europe, it fell to €29.83/MWh on Friday May 19, its lowest level since June 2021, before crossing the €30 mark in end of session. In France, on the wholesale market, the PEG index even fell to €27.80/MWh, for delivery in June.
Since the start of the year, gas prices have fallen by 60%. Compared to the peaks reached in 2022, the fall is even more spectacular. On average over the year, the megawatt hour of gas fluctuated around €135, even climbing to €345 in March, the day after the Russian invasion of Ukraine, and to more than €300 in August, after the shutdown of the Nord Stream 1 gas pipeline.
US shale gas imports tripled
This development was expected, as several factors have weighed on gas supply and demand for several months. On the supply side, the traffic of LNG carriers, with their cargoes of liquefied natural gas (LNG), is running at full speed, particularly from the United States. To the point that ships sometimes have to wait several days off the French and Spanish coasts to unload their precious merchandise. Never seen.
LNG imports into Europe thus increased by 63% last year, to reach 66 billion cubic meters in 2022. To be compared with the 155 billion cubic meters delivered by Russia before the war, which represented 45% of consumption. European.
Two-thirds of LNG volumes are now US shale gas, whose exports to Europe tripled last year, much to the chagrin of environmentalists. The United States has become the leading supplier to the European Union.
Inventories are at their highest for this time of year
On the demand side, the rather mild winter made it possible to limit needs and maintain stocks at historically high levels for the season. They are over 90% full in Spain and over 70% in Germany and Italy.
France, on the other hand, is less well off, with only 45% filling of its underground reservoirs, due to the strikes which disrupted the operation of the LNG terminals.
The European Union is therefore in a better position than last year to tackle the coming winter. There is also less competition between Member States, which in 2022 contributed to pushing prices up.
The Commission has even just successfully launched an initial call for tenders to carry out group purchases of gas. According to the results published on May 16, 25 “reliable international suppliers” offered 13.4 billion cubic meters of natural gas, more than the 11.6 billion cubic meters requested by 77 European companies.
Historical decline in demand
Calls for sobriety, high prices and mild temperatures have also contributed to lower gas demand. The decline was 18% on average in the EU between August 2022 and March 2023, while the Commission was expecting a drop of 15%.
But uncertainties remain about the sustainability of this movement. The rise in gas prices had prompted manufacturers to reduce their production. They could now try to revive their machines since prices have fallen. But even at €30/MWh, these are still twice as high as their 2019 level.
Lastly, the slower-than-expected recovery of the Asian economy, particularly China, continues to weigh on demand for hydrocarbons.
Still a lot of uncertainties
Despite everything, the experts are cautious about the evolution of the market over the next few months. There are still a lot of geopolitical uncertainties, including tensions between the United States and China, which remains a major buyer of American gas.
No one is safe either from a cold snap which would cause the demand for gas to skyrocket, but also for electricity, which is generally produced by gas, during peak periods.
“With the development of LNG, new bottlenecks will appear. The problem is not running out of gas, but of factories to liquefy it. There are projects, but it takes time to build them,” emphasizes Jean-Marc Leroy, president of the Francegaz association.
The market could therefore tighten a little in the coming months, when demand will increase again. In any case, this is what the futures markets indicate. On the TTF, the megawatt hour of gas delivered this winter is currently trading between €46 and €52. For the whole of 2024, it is around €50.
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