OVERSUPPLIED MARKET? European Gas Drops to its Lowest in Three Months (1)

Euros / MWh

By Mathew Carr

May 20-22, 2022.

CarrZee: With geopolitical and economic risks …and summer coming …is there actually an oversupply of natgas? JUST ASKING, REALLY.

Comments to mathew@carrzee.net

This from Reuters snipped from here.

COLUMN-Europe’s gas prices soften as rate of storage build is unsustainable: Kemp

CONTRIBUTOR. Linked here.

John Kemp  Reuters

PUBLISHED

MAY 20, 2022 11:38AM EDT

CREDIT: REUTERS/BERNADETT SZABO

Europe’s gas storage is filling at the fastest rate on record as the region attempts to buy as much as possible as quickly as possible before next winter to reduce its vulnerability to any disruption of supplies from Russia.

By May 18, the volume of gas in storage was slightly above the ten-year average (+2 TWh) up from a large deficit at the end of January (-134 TWh).

But with storage already above average, inventories cannot continue accumulating at such a rate without threatening to overwhelm available capacity.

Futures prices for deliveries this summer are already softening to slow storage additions and encourage more consumption by industrial users and power producers.

Benchmark futures for deliveries scheduled in July 2022 have fallen close to their lowest since Russia’s invasion of Ukraine in late February.

The summer-winter spread between July 2022 and January 2023 has slumped into a contango of almost €2 per megawatt-hour down from a record backwardation of €72 in early March.

Prices for deliveries to Northwest Europe are still significantly above those for Northeast Asia, drawing more LNG cargoes, but the regional premium has started to narrow as well.

Exceptionally high prices for the last six months have rebalanced Europe’s gas market and if they continue will leave it with a very large surplus within the next two months.

Plentiful storage will ensure Europe is comfortably supplied through next winter, even if temperatures are unusually cold ― provided deliveries from Russia continue.

Unlike the strategic petroleum reserves held by the United States and its allies, seasonal gas storage is not designed to cope with a significant and sustained disruption of pipeline deliveries.

Even if storage is filled to maximum capacity, it will not be enough to protect Europe from extremely high gas prices and massive economic disruption if deliveries from Russia are halted next winter.

Provided pipeline flows continue, however, the volume of gas now being put into storage should ensure inventories are far more comfortable next winter than they were last winter and prices will continue to fall.

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