July 14, 2021

In worldwide markets, natural gas prices are much higher than anticipated

Rising carbon prices in Europe, a drop in gas from pipelines and a contraction in liquefied natural gas (LNG) capacity, as well as the coronavirus epidemic, have all contributed to a surge in natural gas prices on the global market, according to Sohbet Karbuz, a visiting lecturer at Bilkent University’s Energy Policy Research Center (AA).

The natural gas market has been thrown into disarray, according to Karbuz, not only because of the fast depletion of natural gas stocks in Asia and Europe as a consequence of the harsh winter and cooler-than-expected spring temperatures but also because of the coronavirus epidemic.

Greater industrial and power output, which rebounded after the lifting of pandemic limitations, he added, led to the increase in demand, which coincided with the cold weather.

Karbuz also linked the price hike to rising carbon costs in Europe, as well as the need for gas to cover the demand gap created by reduced renewables production.

“In November 2020, prices were about $25 per ton; today they’re above $50.” As a result, the shift from coal to gas has quickened. In Europe, wind and solar power have also failed to meet expectations in terms of energy production,” he said.

In the last six months, China has surpassed Japan as the world’s biggest LNG importer, signaling a shift in Asia’s gas market, which has seen natural gas demand rise.

The Tokyo Olympics, which begin on July 23, will have an impact on Japan’s demand, according to Karbuz.

Because Japan’s gas stockpiles are in jeopardy owing to the Olympics, there will likely be more competition among importers and higher prices as a result of increased demand.

According to him, the LNG market has shifted away from Europe and toward Asia, resulting in higher LNG prices in Europe this year.

“In terms of pricing, Europe is in a precarious position.” The cost of LNG is rising. Due to maintenance and faults at certain LNG plants in Europe, which is considered the final supplier, LNG intake capacity has decreased,” he said.

Russia’s unwillingness to exceed its regular contract with deliveries to Europe has resulted in a gas supply shortfall.

“Russia delivers gas from Yamal (liquefied natural gas terminal) and via the Nord Stream pipeline at almost full capacity” (gas pipeline). It has the option of increasing the flow via Ukraine, but it does not want to go above the agreed-upon quantity. He said, “There is a global battle.”

In June, a series of difficulties with gas shipments from Libya to Italy exacerbated the shortfall.

According to Karbuz, since pipe gas and LNG extraction capacity has shrunk, LNG costs have risen, which is reflected in hub pricing.

“In the last several days, TTF prices in the Netherlands have reached unprecedented highs,” he said.

Gas prices have almost quadrupled in the last seven years.

Gas supplies in Europe fell to their lowest level in ten years at the end of June, resulting in near-seven-fold price hikes.

In June 2020, prices at the National Balancing Point (NBP) hub in the United Kingdom, the Dutch Title Transfer Facility (TTF), and the Japan Korea Marker (JKM) were all below $2 per MMBtu (Metric Milion British Thermal Unit).

Prices climbed to $10.92 on the NBP, $11.19 on the TTF, and $12.69 on the JKM as of July 7, leaving sellers with a large profit.

He cautioned that this does not augur well for having balanced pricing throughout the winter when demand is at its peak and supply is at its lowest.

“If the weather is severe and there isn’t enough petrol in the tanks, gas prices will be wildly fluctuating.” He said, “There is just too much price fluctuation.”

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