European gas prices down 30% on week as storage levels soar
Quantum Commodity Intelligence – European natural gas prices slumped to six-week lows Friday as swollen storage capacity prompted concerns that future deliveries may struggle to find tank space before winter demand kicks in.
Consumption also continued to slow with June demand 15% below the 5-year seasonal average, or 13% below on a weather-adjusted basis, as demand has settled within a relatively narrow range of 12-15% below seasonal averages this year.
"Thanks to amply filled gas storage facilities, prices in Europe have even slid below the level they were at before the Ukraine war started. In view of our pessimistic assessment of the economy, we assume that gas demand will recover only moderately," said Barbara Lambrecht of Commerzbank.
Benchmark TTF prices for Aug23 were trading around €26/MWh on Friday, down 30% from week-ago levels of €34/MWh, having touched €40/MWh at the start of the month.
"Risk remains that storage will be full well before winter demand kicks in, skewing near-term risks downwards for TTF prices," said Morgan Stanley in its latest client note.
The investment bank noted European inventories are at 81%, well above last year's 62% and the five-year average of 65%, risking a 'tank tops' scenario later in the year and forcing LNG imports to be stored on the water.
"Although LNG imports have slowed down somewhat so far in July, the total amount of LNG on-the-water steaming for Europe still suggests that LNG imports will continue above 200 mcm/d in coming weeks," said the report, adding the small discount on TTF versus Asian JKM creates only a marginal incentive to send LNG to Asia once freight costs are taken into account.
Burgeoning storage levels were enough to offset lower nuclear power output in France and continued gas supply disruptions from Norway.
Europe's heatwave caused the French to halve the output of 2 nuclear plants from July 13 to 16 due to environmental regulations on using river water for reactor cooling.
Pipeline exports from Norway declined 16 mcm/d month-on-month due to outages at the Nyhamna processing plants, which also impacted production at the Ormen Lange and Aasta Hanstein fields.
