European natural gas prices remained high on Tuesday against the benchmark Dutch Title Transfer Facility (TTF), but lost some of Monday’s gains after Russian supplies to Europe via the Nord Stream 1 pipeline remained suspended – adding to the woes of governments struggling to get enough of the goods in time for winter.
United States natural gas price chart
The Intraday TTF price was €235.155 at the time of Tuesday’s writing. On Monday, it jumped 30% to €280 per megawatt hour (mwh). In contrast, the price of US natural gas on the Henry Hub fell 4.62% to $8.38 per million British thermal units (MMBtu).
“In the immediate term, the scorching heat in California may support the one-time request to add some physical support. Later this week, however, it would not be surprising to see a test of support in the low to mid range of $8.00/MMBtu – or less,” EBW Analytics said in a note to clients.
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Impact of winter weather conditions on gasoline prices
Piero Cingari, commodities analyst at Capital.com, said geopolitical factors, including the conflict in Ukraine and the shutdown of Russian gas supplies to Europe, are disrupting the natural gas market – and no doubt will continue. to affect seasonal trends.
“In the event of a particularly severe winter in Europe, for example, several energy analysts have suggested that European gas reserves, which are currently operating at around 80% of their capacity, could be exhausted by March/April. This assumption could lead to an increase in demand for gas imports from the United States, which would put significant upward pressure on domestic natural gas prices in the United States, despite the fact that they show a historic negative seasonal trend during the winter months,” Cingari also said. Noted.
Asia and Europe compete for LNG
Japan, South Korea and China share the same season of peak heating demand as Europe, all being in the northern hemisphere, which means they also compete for natural gas – and charcoal – to stay warm this winter.
“Asia has been vulnerable to rising energy prices and will now face new headwinds to secure energy supplies as the bidding wars with Europe escalate,” he said. Charu Chanana, market strategist at Saxo Bank, at Capital.com.
A shortage of energy supply increases the risk of blackouts and manufacturing shutdowns, contributing to increased market volatility, she added.
The analyst also noted that LNG spot prices in Asia for summer 2022 are at their highest level on record, about seven times the average price in 2017-2021, as the region loses liquefied natural gas (LNG) cargoes. ) to the benefit of Europe in a bidding war. .
Although it is early for meteorologists to predict the global weather forecast for the coming months, any prolonged drop in temperature will undoubtedly lead to another cargo fight, which could potentially cause gas prices to spike again. natural.
Gas prices rise as heating demand falls
Contrary to popular belief, U.S. natural gas prices posted very weak average returns during winter 21/22 and the coldest months of the year (December, January and February), despite the fact that household consumption for heating was the highest during this period.
Piero Cingari explained why this is the case.
“In fact, when the demand for heating goes down, the price of natural gas goes up. The two strong quarters for US natural gas prices are March-May and August-October, with September being the strongest month in terms of average returns. So what causes this particular seasonal pattern? Natural gas prices tend to rise during the charging season. Demand for natural gas is increasing due to the need to replenish supplies ahead of the winter months, pushing the price of the commodity higher.
“Winter peak demand can generally be met with a high level of gas reserves, barring significant and prolonged frosts, which can sometimes lead to price pressures,” he explained.
However, average monthly US natural gas returns are historically high in September (12%) and October (8%), but low in December (-4.5%) and January (-3.5%).
“Win frequency – a measure of the historical likelihood of a month going well – is also quite high in September and October (72% and 66%, respectively). In December (38%), January (31%) and February (31%), gain frequencies are well below the 50% threshold, indicating that there have been more negative than positive natural gas price returns over the winter months, and reinforcing thus the negative seasonal trend,” Cingari added.