Is There a Bottom for Europe’s Plunging Natural Gas Market?
As natural gas prices across the Atlantic are flirting with their lowest level in more than two decades, European energy traders this week struck a very bearish tone at a giant industry event in Germany’s industrial heartland.
The global glut of the fuel has seen prices plunge in the U.S., Europe and Asia as a wave of liquefied natural gas hits the market. Associated gas from oil fields in North America also boosted supplies at a time when demand growth is under threat from a slowing global economy and the coronavirus.
Against a noisy backdrop of live music from saxophones and violins to pouring of beer at plush corporate stands at the E-World in Essen, more than a dozen traders, executives and analysts quizzed by Bloomberg were so perplexed by the slump they wouldn’t pinpoint a low. The bearish market was a main talking point at the event, which attracted more than 25,000 visitors from Europe and beyond.
“It is possible that gas prices in Europe will decline even further,” said Domenico De Luca, head of trading and sales at Swiss utility Axpo Holding AG. “There are a lot of bearish signals in the short term,” he said, citing full gas stores and even more LNG supply coming online in the summer.
The European benchmark slumped by almost half last year and has slid a further 27% this year to trade near their lowest in more than a decade. That comes as Asian LNG has never been cheaper and U.S. futures are near levels last seen in 1998.
The coronavirus outbreak added another layer of difficulty for gas shipments as trade patterns shifted with more LNG cargoes heading for Europe as Chinese demand dived. At the same time, the absence of any real winter in the Northern Hemisphere added even more pressure on prices.
The mild weather has also left European storage sites almost full, which will translate into record low injections this summer, De Luca said. That means prices could continue to slide until they reach a point where it doesn’t make financial sense to sell into the market.
But those levels still appear some way off. Tor Martin Anfinnsen, a senior vice-president at Norway’s Equinor ASA, said in an interview that the region’s second biggest supplier had no plans to curb supplies.
“If someone is hoping for supply relief from Norway, we will have to disappoint them,” Anfinnsen said in Essen. “We will be the last ones to turn off the taps. We are far away from reducing flows.”
Oil prices have also slid this year, another victim of the coronavirus, leading some OPEC members to consider deeper cuts in oil output. The group’s most important ally, Russia, is not so sure, promising OPEC an answer “soon.”
Essen is also the home of RWE AG, Germany’s biggest power producer who will receive almost $3 billion to shut its coal plants by 2038. One result of the cheap gas prices is that coal burn at power stations slumped last year. That’s good for the environment since coal is twice as polluting as gas.
As the traders in Essen focused on the oversupply, one industry executive on Friday talked up the need for more gas from Russia, the region’s biggest supplier.
Austrian energy company OMV AG helped finance the Nord Stream 2 pipeline, which will bring Siberian fuel directly to Germany. It’s being delayed after the pipe-laying company hired to complete it was hit by U.S. sanctions.
“From my point of view, the market needs this additional gas” as domestic European supplies are dwindling, OMV Chief Executive Officer Rainer Seele told Bloomberg Television.
In the meantime, Ewout Eijkelenboom, senior consultant at Kyos Energy Consulting in the Netherlands, thinks that prices could fall until at least the summer.
“It won’t be a straight line, we will see bumps,” he said. “The LNG market is in a cycle where many projects are coming online at the same time and demand is not responding.”