RE: Gasprice21 Aug 2022 08:40
Despite faster storage builds than usual, Germany will only have enough natural gas to cover two and a half months of consumption this winter if Russia completely suspends deliveries, Klaus Müller, the president of Germany's energy regulator, told Bloomberg this week.
"The burden of high gas and oil prices will actually mean that we are going to see some steep contraction in the European economies next year," Amrita Sen, director of research at Energy Aspects, told Bloomberg on Wednesday.
U.S. Natural Gas Prices Rally, Too
European prices are at record highs and at around seven times higher than U.S. benchmark prices. But the U.S. prices at Henry Hub have surged, too, to the highest they have been in 14 years. This is the result of flattish domestic production, strong gas demand from the power sector in heatwaves, and lower than normal stocks in storage, despite the outage at the Freeport LNG export terminal, which has made available more gas for domestic consumption. The Freeport LNG outage prompted a 39% decline in Henry Hub prices in June. But in July, higher-than-normal temperatures across much of the U.S. resulted in strong gas demand in the power sector, which absorbed much of the Freeport LNG-related surplus and kept natural gas inventories from rising faster, the EIA said last week. Moreover, natural gas price volatility reached an all-time high in Q1 2022, the EIA noted.
Related: Erdogan To Meet With Putin: “We Don’t Want Another Chernobyl”
Working natural gas stocks are 12% lower than the five-year average and 10% lower than last year at this time, according to the EIA.
After a slump in early June due to the Freeport LNG force majeure, U.S. benchmark gas prices have rallied by 70% since the end of June, hitting this week their highest level since August 2008 at above $9.30 per million British thermal units (MMBtu). The European benchmark price in MMBtu equivalents is now nearly $70/MMBtu – roughly seven times higher than American benchmark prices. This wide price differential is expected to pull more LNG exports out of America to Europe, which are already at record highs as the EU looks to replace as much Russian pipeline gas as possible.
Asian LNG Prices Also Soar
Asian utilities are also back on the market to procure fuel for the winter, traders tell Bloomberg. Higher demand in northeast Asia sent spot LNG prices rallying to nearly $60/MMBtu—the highest level since the beginning of March when the Russian invasion of Ukraine drove up northeast Asian prices to a record high of over $80/MMBtu.
With winter approaching, natural gas prices could see further upside as Russian supply remains low, LNG demand rises, and American producers are not rushing to ramp up production.
Eventually, the high prices could spur a response from U.S. shale gas drillers on the supply side, while on the demand side, record prices could accelerate the destruction of demand and sink European economies.
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