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/ Former USSR / Economy / Energy dialogue / Oil&Gas

Gas prices up in Europe

The average August purchase price has approached $400 per thousand cubic meters in the EU

01.09.2023 16:52 Alexander Pasechnik, head of the Analytical Department at the National Energy Security Fund

Context:

USA tightens sanctions on Gazprom

Natural gas prices have been on the rise in both Europe and the United States since reports of upcoming industrial disturbance. Chevron LNG has been notified that strikes at its Australian export plants will begin on September 7 unless the company reaches an agreement with its employees.

August 28 saw unions notify of strikes at the Gorgon and Wheatstone plants. Chevron issued a statement that it will keep "working through the bargaining process" as it "seeks outcomes that are in the interests of both employees and the company." On August 24, Chevron workers voted to grant unions the right to strike.

Another Australian exporter, Woodside Energy Group, has managed to clinch a deal with its workers to avoid the danger of strikes. It remains to be seen whether Chevron proves able to do the same.

Gas prices in Europe skyrocketed on August 15 to exceed $450 per thousand cubic meters, followed by first major concerns of LNG supply cuts over Australia’s planned strikes. Half a month has passed, but the problem is still making the market nervous — about 10% of the global LNG supply is imperiled. Still, the morning London ICE exchange trading of August 30 has been associated with some price correction: September futures went down to about $380 per thousand cubic meters.

In July, Europe’s average purchase price was $337, and in August it reached $394.

Among the triggering factors have been zero wind (weakened renewables segment) and fervent heat (need for active air conditioning).

Another price incentive is a reduction in Norwegian exports, which reinforces lingering concerns on potential malfunction of key Australian export facilities. On August 28, Norway’s Gassco network operator announced that additional work had been carried out at fields included in the UK-linked Segal network. The operator specifies no terms for capacity reduction after the preplanned works.

It is not even calendar autumn, and China has not yet come into play, with its natural gas reserves to be maintained either. Another seasonal LNG fight is highly likely between Europe and Asia to become fiercer in case of Australian strikes. Logistics disruptions may force Asian buyers to compete harder with Europe for shipments from the United States, Qatar and others.

Therefore, there is still room for price growth, despite reserves kept in Europe’s underground storage — after all, the volumes of pipe gas have been declining in the European Union. Another viable option is complete transit cessation via Ukraine’s gas transmission network any tick of the clock. Which is also a big risk for EU energy security. Gazprom's corporate officials have warned Natfogaz that pressing far-fetched lawsuits through courts is an incentive to break off cooperation. And yet, supplies have not been shrinking to exceed a daily 40 million cubic meters as per August.

Meanwhile, LNG shipments to Europe’s gas transportation system have increased again to an all-time high for late August.

Curiously, the EU intends to import record LNG volumes from Russia in 2023 amid Brussels' initiatives and aspirations to give up on Russian fossil fuels at the earliest possible juncture — by 2027. Scenarios of the kind have been announced by the Financial Times (FT) relying upon data from the Global Witness international organization.

In general, LNG imports to the EU witnessed a general 40 percent increase in January-July 2023 as compared to the same period of 2021. Belgium and Spain became the second and third largest buyers of Russian LNG after China. According to the General Administration of Customs of the latter, LNG supplies from Russia increased by 62.7 percent to 4.46 million tons in January-July.

Global Witness spokesman Jonathan Noronha-Gant called it "shocking that the EU countries have worked so hard to ditch Russian piped fossil gas only to replace it with the equivalent delivered by ship." The European commissioners do apparently realize futility of issuing a complete ban on Russian natural gas imports (including LNG) — this may prompt a new energy crisis in the region.

Another question is whether Russia will send more methane carriers from Yamal to the EU if the margin ratio makes it more preferable to deliver cargoes to the Asia-Pacific.

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