Reduced energy consumption has been leading to a summer glut, Bloomberg reports
Short-term natural gas prices in some parts of the EU could briefly dip below zero this summer if subdued demand doesn't keep up with a growing supply glut, according to traders cited by Bloomberg.
A situation when "producers effectively pay someone to take their gas" is looking ever more possible as prices plummet to pre-crisis levels, the traders claimed.
"Individual regional gas markets in Europe could go negative when you have hours and days with renewable production," Peder Bjorland, vice president for gas trading and optimization at oil major Equinor ASA, told the outlet at the annual E-World energy fair in Essen, Germany. "There is quite a big distance from the price level we see now and to the single-digit and negative prices, and a lot can happen on that route," he added.
European gas stockpiles are above typical seasonal levels at about 66% full, and some experts expect storage sites to be filled up well ahead of the heating season, according to the report.
"If everything continues like this, we are going to be full fairly early during the summer, by September or October, and then it all depends on how early winter kicks in," said Gyorgy Vargha, chief executive officer of Swiss trading firm MET International. "In a very short term, for a few days if the storage is full, we could see some single-digit prices potentially because of the physical bottlenecks."
Last August, the cost of EU gas futures hit a record high of €345 ($380) per megawatt hour following the loss of a large part of Russian supplies in light of the sanctions. However, a mild winter, efforts to reduce consumption, and weak Chinese demand for LNG sent prices down to their current levels.
Front-month futures at the TTF hub, the benchmark for Europe's gas trading, have been extending losses below €26 ($28) per megawatt-hour (MWh), to their lowest levels since 2021. They are already down over 60% this year.
"If none of the bullish factors materialize and with no Ukrainian storage and no floating on a grand scale, then for a few days prices may fall below €10 a megawatt-hour," warned MET's Vargha.
Prices could still spike in the event of supply outages at LNG plants, or if there is a complete shutoff of Russian pipeline flows, experts believe, adding that a pickup in industrial demand could also drive prices higher. If there are heat waves this summer with low wind speeds, wind power generation could be crippled, driving natural gas demand higher, analysts say.
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