Market Overview

Europe is beginning to suffer from the physical shortage of gas. There are many reasons for this that supplement each other. The Freeport LNG Quintana Island liquefaction facility is currently shut down after a gas blast and will not continue its full operation until late 2022. This facility exports around 20% of LNG from the United States that primarily goes to Europe.

Gas exports via the North Stream pipeline to Germany have been dramatically cut by 100 million cubic meters per day or 60% of the regular supply. Russia has shut down both Siemens engines at the Portovaya compressor station as the producer failed to provide the overhaul service in time. This service has become unavailable as Siemens has to comply with sanctions against Russia. One of the engines had to be replaced with a new one that was coming from Canada, but sanctions that Canada is supporting, are preventing the delivery, according to Siemens. Thus, gas supplies have been reduced to Germany, France, and Italy since June 15. Italian Eni said it has received only half of the requested gas amount.

All these troubles are accompanied by the hot summer in the U.S. and Europe. This has boosted the demand for electricity as people use air conditioners to cope with the heat. The increased demand for electricity increases the demand for gas to generate it. Thus, the atmosphere is overwhelming as Dutch TTF Gas futures jumped to almost 128 Euros per MW, or by 80% over a week. However, they scaled back a little to 125 Euros per MW on Tuesday afternoon.

The tension remains high, and a compromise between European’s gas needs and sanctions  should be found. Otherwise, gas prices may continue to surge above 128 Euros. Now they are strongly supported at 117 Euros per MW.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.