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Natural gas prices have risen to seasonal record highs as global gas demand is expanding and supply is not able to keep up. Bullish fundamentals combined with weather-related events have acted as tailwinds to propel prices. The extreme supply tightness of the global gas market is now spilling into oil markets.
Source: CME Group data
When Inelastic Demand Meets Acute Supply Shock
In Europe, natural gas prices have surged to record-high price levels. The front-month contract for the Dutch Title Transfer Facility (TTF), the benchmark price for the European market, has risen fivefold since the beginning of 2021 – from 20 EUR/MWh to more than 100 EUR/MWh (>30 $/MMBtu) in early October. Market observers attribute this unprecedented price rise to a confluence of factors.
Following a colder-than-average 2020-21 winter, gas storage facilities in Europe have not been able to replenish their stocks to sufficient levels ahead of the start of the new winter season. As of October 10, storage levels in Europe were at 77% capacity. At the same time last year, they stood at 96%, and 97% the year prior. LNG imports to Europe have not helped enough since Asian demand for liquefied gas continues to pull many cargoes eastwards.
Gazprom (MCX: GAZP), which remains the single largest supplier to the European market, has met contractual delivery obligations but has not been able to deliver additional volume to its customers. Compounding the issue, weak wind output and low hydro storage levels due to drought conditions during the summer means that demand for natural gas for power generation is unusually strong. Industrial demand for natural gas is responding to these unprecedented prices, with some fertilizer plants idling production in recent weeks.
Less Flexibility in Supply
While these factors may be transitory in nature, structural changes in the European natural gas landscape have aggravated the challenging situation. Domestic production is in long-term decline, making European markets more vulnerable to issues in other regions, most notably North …
Source Here: benzinga.com
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