Europe’s gas situation remains stable with storage levels increasingly marginally to 58%. Neutral gas prices remained below €50/MWh ($48/MWh) for all but one day during the past month, with latest neutral gas prices hovering below the €40/MWh mark.
There are concerns that gas prices could begin rising as EU countries have been unable to secure cheaper long-term supply contracts of LNG. The absence of long-term LNG supply contracts means that the EU might have to resort to buying most of its LNG for the upcoming winter season on the more volatile spot market. Spot market prices could vary widely this year based on Chinese demand, and estimates indicate that the EU could account for up to 50% of trades on the LNG spot market this year, up from around 30% last year, if no long-term contracts are secured.
Potential spikes in European LNG prices could be moderated by the European Union’s new joint gas buying platform which was launched on April 25. The platform, known as AggregateEU, will allow companies to submit their gas and LNG orders for the next 12 months. Orders from smaller gas buyers will be pooled and the platform will then match buyers with prospective sellers. The system is designed to leverage the collective buying power of member states so that larger gas orders can be secured from sellers, and to reduce the likelihood of a bidding war arising between the continent’s own gas buyers in the coming months.
Industrial gas consumption remains lower despite falling prices
In addition to high gas storages levels, the continent’s energy outlook for 2023 will be dependent on the ability of industrial users to continue reducing their gas demand. However, uncertainty remains over how long energy-intensive industries will be able or willing to continue curtailing production to help meet the EU’s mandatory gas reduction targets. A December 2022 survey by McKinsey Energy revealed that 57% of surveyed manufacturers will be unable to maintain current output levels with current gas consumption reduction measures in place.
Data from Germany’s Federal Network Agency revealed that industrial gas consumption levels averaged around 12% lower during Q1 of 2023 compared to the same months in 2022, while French natural gas transmission system operator GRTGaz estimated that consumption of natural gas among French large industries decreased by 23.3% between August 2022 and April 2023.
Efforts to refill the continent’s gas stores are underway as storage levels increased by nearly 3% over April, the first rise in gas storage levels since the 2022 winter season began.
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