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    High futures prices stress the gas market this winter

    September 25, 2023 - CE Noticias Financieras


      With natural gas reserves at an average of 95% in European Union countries, the market for this fuel is at a crossroads: while the spot price closed in the first half of September at 34.80 euros/MWh (Mibgas) and 33.63 euros/MWh (the Dutch TTF) the futures markets traded at more than 50 euros/MWh for 2024.

      A difference (premium) that is causing speculation among Liquefied Natural Gas (LNG) traders, who are using methane tankers as warehouses waiting for the price to rise in order to sell the gas and unload the ships at the regasification plants. An accumulation of ships "in the water" of which the analysts of Grupo ASE warn, because it would raise freight prices by reducing the shipping capacity to transport LNG. In Spain, the system manager and transporter, Enagás, has not detected any impact on unloading or slot auctions.

      According to Juan Antonio Martínez, an expert at the firm, several factors are causing futures to reflect an increase in the risk premium for 2024: discounting gas inventories that are already in order, an increase in demand is expected for the coming winter, especially in Asia (China, Korea, Japan and Pakistan) and the United States, which is allocating less LNG for export to meet its higher consumption and is reducing supply. The expectation of a strong take-off in China continues to be reflected in the forward markets.

      Higher demand would come on the back of cooler temperatures than last winter's unseasonably mild winter. Experts are forecasting a return to the historical range and a return to cooler temperatures.

      Added to all this is the uncertainty due to the strike at Chevron's LNG liquefaction plants (Australia), the cancellations at the Freeport Freeport (USA) as well as the long maintenance of Norway's largest gas field (Troll). All this, according to ASE, is contributing to an increase in futures market prices.

      Compared to what happened in the summer of 2022, when, in order to comply with the levels of reserves imposed by the European Commission to avoid problems of winter shortages, this year the gas gathering has taken place more gradually and the objective has been reached two months in advance.

      In the case of Spain, 100% of onshore storage facilities and 70% of LNG tanks are already full, although inflows and outflows are fluctuating. LNG purchases have been reduced by 15% during the summer just ended.

      Therefore, this year, the purchase of gas destined for the obligatory community reserves has not affected quotations, as could have been feared, but the tensions in the market, which is contaminating the prices of the wholesale electricity market (pool), in which the marginal price is set by the combined cycle gas plants. These are above 100 euros/MWh (today, at 110.06 euros/MWh), according to data from the market operator, OMIE.

      What happens with the TUR

      Although these prices are more than 50% below the summer of last year, so far in September they have risen by more than 7% compared to August. In the case of the electricity bill, its increase in price will continue to be cushioned if the Government chooses to maintain the sharp cut in the taxes levied on consumers' bills, which expires this year: VAT, at 5%, electricity, at 0.5%, and 7% on income from any type of generation.

      The subsidy, via the Budget, for the last resort tariff for natural gas (TUR) has had a greater impact this year, with an allocation of 3,000 million euros. Its maintenance will depend on a possible extension of the State Budget in 2024, in the event that there is no investiture or, if there is one, there is no time to process new public accounts. This subsidy, together with the drop in the price of raw materials, made it possible to reduce the regulated gas tariff by 30% in the second quarter of this year.

      Everything will depend on the performance of the last months of the year, analysts stress.


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