Market Overview

The gas market in Europe was on alarm recently as prices for July 2022 Dutch TTF gas futures jumped to 133 Euros per MW last Friday. Prices scaled back to 129 Euros on Tuesday, but they are unlikely to reach a deeper correction.

Prices surged as Russia significantly reduced gas supplies to Europe during the period when gas was being replenished into gas storages in preparation for the coming winter season. Storages are reported to be filled by 59% of their total capacity, which is a low percentage for this time of the year. The major pipeline North Stream 1 is operating under 40% of its capacity due to technical reasons so it is delivering less than 100 million cubic meters per day. Moreover, Russia announced it will cut supplies completely in July for gas pipeline maintenance. German Economy Minister Robert Habeck said he can’t be sure that Russia will resume supplies through a pipeline after  maintenance is complete. “I would have to lie if I said I didn’t fear that,” he said. Klaus Mueller, the head of the German federal network agency warned that consumer prices could triple if supplies stop coming in and urged to save energy wherever possible. Germany raised the country’s gas risk level to the second highest “alarm” phase, one step below the third and final “emergency” stage which would involve state control over energy distribution. EU climate policy chief Frans Timmermans said a contraction of gas supplies affected a dozen of European countries and may force EU states to greatly reduce production, pushing a recession onto the European economy and curb gas consumption in the winter. Some EU countries have increased energy generation by coal-fueled power plants. The Netherland is considering boosting gas production at Groningen gas mega field as a last resort. The field was supposed to be closed off after drilling caused many damaging earthquakes in surrounding towns.

The gas market is likely to suffer extreme volatility as the start of technical maintenance of North Stream 1 scheduled for July 11 draws closer. The European Central Bank’s President Christine Lagarde statement this week may also affect gas prices, as well as some other economic developments in the EU, such as the consumer confidence index, PMI readings, and unemployment indications scheduled to be published later during this week. The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) meeting on Thursday would be a major event that could also affect gas prices.

Nevertheless, the upside trend for gas prices may continue as prices are moving towards 200-206 Euros per MW, a range last seen in March this year.

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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.