Natural gas prices are falling and may continue to do so

A gas hob.
A gas hob. Source: Priit Mürk/ERR

Since the beginning of July, natural gas prices have been falling. Experts believe this trend may continue in the future.

At lunchtime on Tuesday, the price of natural gas on the Dutch TTF exchange was just below €30 per megawatt hour (MWh). The last time the price was this low was a month ago, after which it began to rise again. The start of July however, saw a new fall in the price of gas.

At the end of May, the price of natural gas fell to below €25 per MWh. After that, it increased again, following news of short-term gas supply restrictions. However, according to Baltic Energy Partners board member Marko Allikson, this kind of negative news does not override the actual market situation. He pointed out, that a drop in the price of gas is therefore expected,.

"By September, gas tanks are filling up, gas consumption is lower than a year ago, demand in Asia has not increased significantly, and the need for gas in electricity production is also limited due to the more reliable French nuclear plants and addition of renewable energy," said Allikson.

"Therefore, this long-term downward trend could continue for as long as there are no substantial changes to the market that might jeopardize tanks being filled further, or the gas supply for consumption peaks in winter," he explained.

Eesti Gaas board chair Margus Kaasik told ERR, that the price increase on the TTF exchange in early and mid-June was mainly down to the decrease in Norwegian gas flows, which were in turn a result of delays to planned maintenance work.

"This week, however, several maintenance work projects are expected to be completed, and an increase in Norwegian flows has already been clear to see in recent days. The price increase that happened in the beginning and middle of June was an overreaction from the market, but now the conditions have normalized. At the moment, supply exceeds demand in the northwestern European region," said Kaasik.

Prices will fluctuate in future

At the same time, the market is still fragile after the most recent crisis, and therefore even seemingly minor news can have a significant impact, at least in the short term.

"In the short term, prices will probably jump up and down in response to various news affecting the gas market," Allikson said. He added, that these fluctuations could force some traders to close their positions for example, if prices reach their risk limits. "This in turn amplifies the volatility further," he added.

According to Kaasik, the last few months have shown how difficult it is to forecast prices "in such a volatile time."

"The main factors are the weather, the busy schedule of maintenance work during the summer period and the availability of LNG (liquified natural gas) in Europe, which partly depends on Asian demand," Kaasik said.

The price of natural gas has fallen more than tenfold since last August. The main reasons for the drop are a strong decrease in gas consumption throughout Europe as well as sufficient supplies of LNG from other parts of the world.

At the same time, the price of natural gas is currently higher than at the beginning of 2021, when the it cost €17 per MWh on the TTF exchange.


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Editor: Michael Cole

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