The four hits that have led to a 25% increase in weeks

Something is happening with European gas. Raw material prices are rising and, although they are a far cry from the prices generated by the war in Ukraine and the shocking changes in the continent’s energy supplies, the increase is notable. So far in November alone, reference contract prices (Dutch TTF) on the continent They’re up 25%, 55% so far this yearDue to which it can reach 48.2 euros per megawatt hour.

Markets were already expecting a tight market in the Old Continent due to the possible cutoff of the last Russian gas pipeline to the EU (which passes through Ukraine) and Whose contract expires on the last day of 2024. Additionally, a colder winter than in recent years has added pressure to the market, which has faced more problems than expected. However, the reality is turning out to be worse than the forecasts.

Although until now the words Russia and gas were inseparable when talking about the gas ‘bill’, eventually other factors are emerging and imposing themselves on a continent that already enjoys a relative balance compared to its neighbor. Have done. Although it is a key element, Since it represents 8% of the continent’s exports, This is a far cry from the 40% before Putin launched his offensive against Ukraine. In this sense, other factors responsible for the increase in skepticism in the European energy market are emerging.

And it is not just that there has been a seasonal increase in prices. The region’s gas reserves are declining faster than expected. The aggregated gas storage inventory shows that gas tanks are already at 87%, a figure, although high, the lowest since November 2021, when The war in Ukraine caused real supply disruptions

To find such a low figure at this time of year, you have to go to 2018, where Russian gas flows through gas pipelines at full speed and, again, guarantees a secure supply without the mandatory need for full saddlebags.

This situation and the possibility of it getting worse in the coming days has led to two consequences, first, analysts are coming forward Upgrade your European gas outlook to the upside For the next few months. Companies in the region, on the other hand, seeing Europe as a ‘premium market’ for gas, are redirecting all their orders to the Old Continent, turning it into a ‘Mecca’ for LNG cargo ships. Who were going to Asia earlier.

This is explained by energy consultancy Energy Intelligence, which comments that “within four to eight weeks average prices for LNG deliveries to the south-east of Europe have reached $14.3, causing a burst of 50 percent profit on orders from Asia“. To illustrate the “dramatic change” that has occurred, the firm comments that just a month ago orders for Asia exceeded those for the Old Continent by two dollars.

As a result, Energy Intelligence comments that “six shipments have already been diverted from the US.” When asking operators why North American ships such as Flex Vigilant, Myrina or GasLog Windsor have changed their destination, they explain that “We believe that gas prices in Europe will remain high until the end of the year while in Asia We hope that the period will be more comfortable.” One Asian company commented in its latest report that “We see that some big companies have maintained their shipments Europe and Asia have met their cargo shortages in the last few weeks and this is likely to continue for some time.

Goldman Sachs agreed with these viewpoints in its latest report last week and talked about prices Flying above 77 euros per megawatt hour In the worst case scenario in the short term. While for 2025, in the medium term, they revised the average price to 40 euros compared to 34 stipulated.

The firm reminded that higher prices will affect households and industries. higher cost “Weakening economic recovery efforts and rekindling inflationary pressures.” But what happened? Although Russia is playing an important role in what is happening with prices, the reality is that this time it has been mixed with other problems that have arisen at practically the same time.

‘Common cold’ and wind off

Low temperatures are a threat each year, with this threat decreasing year after year as mild winters neutralize this threat. However, this year seems to have been chosen to solve this problem. ,Cold wave intensifies in Atlantic “Market stress continues as sub-zero temperatures continue to impact northwestern Europe and the northeastern United States,” Quantum Commodity Intelligence said in a report Thursday.

The EIA comments that, in addition to the cold wave experienced, it is expected that there will be more vigorous changes. “One or more areas of the Northern Hemisphere may experience winter temperatures It is colder this year, as weather models point to a possible shift from El Nino to La Nina.” This shift results in lower temperatures.

“We are still early in the inventory reduction season, so the impact of weather could make a big difference in reduction expectations”

For its part, the European Weather Forecasting Center comments that they “expect a much colder winter this time around.”“Two historically warm winters”From the EIA they explain that these two very hot years “contributed to relatively low consumption of natural gas in Europe, which ultimately resulted in higher prices.”

“We’re still at the beginning of inventory reduction season Climate impact can bring big changes Sadan Ali, an oil and gas analyst at HSBC Holdings, said he expects shortages next year. He expects Europe to emerge from the summer season with 42% full inventories, down significantly from 59% last year.

This all happens during wind energy It has actually seen a significant decline in production, Something that has had to be replaced with gas. In Germany, Poland and the United Kingdom, national electricity supply companies explained over several days in November that they were turning to gas reserves for power generation due to low wind production.

Problems in LNG production

All this compounded with a wave of delays in LNG supplies. This is clearly seen in Total Energies’ announcement that a number of projects were expected They will arrive as soon as January 2025 Or later in February. However, they have announced that they will be coming in 2027. This is due to the poor condition of American companies which are facing cost increases and staff shortages (which has led to wage increases). All this was affected by Biden’s order in January, which is still in place and prevents the approval of new projects, something that has discouraged increasing production in the face of greater demand in the future.

Total Energies’ announcement is not an isolated case, as the EAI (Energy Information Administration) comments that “there are potential delays in new projects that will impact supply.” S&P Global commented that “there are supply concerns as delays at LNG projects are limiting supply growth more than expected.” In its latest report, Kepler reduces global supply for 2024 More than 0.7 million tons, up to 416.2 millionThe firm reported that “this was mainly due to delays in the commencement of projects.”

Russia’s ‘Sword of Damocles’ continues to weigh

However, Russia still remains the dominant actor. In the absence of agreement, The last gas pipeline, Soyuz, passing through Ukraine will not be operationalUntil recently there was optimism that a consensus could be reached, but in recent weeks pessimism has skyrocketed. In particular, Austrian gas company OMV had already called for a complete cut in supplies following the ruling against Gazprom.

By This exceeds 5% of gas ‘highway’ supply of the continent, that is, about 140,000 million cubic meters per year. Although this may be a small amount, it is really significant for highly dependent countries like Austria, Slovakia or Hungary. “Uncertainty over the deal with Russia is a fundamental element for gas prices,” Energy Intelligence says.