European natural gas demand could lead to higher prices this winter

Marko Allikson.
Marko Allikson. Source: Ken Mürk/ERR

While natural gas storage facilities in the Baltic states, principally in Latvia, are adequate to cover the winter needs of Estonia, Latvia and Lithuania, this is not the case in much of the rest of Europe, which will in turn exert an upward pressure on natural gas prices to consumer, even if supply is adequate for Estonia, one stakeholder says.

This can be exacerbated by the situation further afield, particularly in Asia, independent energy traders Baltic Energy Partners board member Marko Allikson says, though a situation quite as severe as that last winter is not forecast.

Appearing on ETV morning show "Terevisioon", Allikson said that although at present natural gas storage in Europe is at capacity, and so seemingly well prepared for the winter, should that winter turn out cold, fears of shortages will raise gas prices Europe-wide once again. 

Competition with Asia, principally Chinese and Japanese purchasers, will also drive up prices he added.

"Were everything as it is in the Baltic states, natural gas prices would not go up," Allikson told "Terevisioon."

"Storage in Latvia is at such a volume that we have sufficient supplies for practically the whole winter, but this is not the case across Europe. The proportion of storage is simply so small that it is always necessary to obtain more gas from elsewhere. But if you start competing on the market in the winter time, when demand comes from all quarters, prices will simply rise. This fear is present, hence why prices are seen higher in the winter," he went on.

Allikson also noted the example of Australia, source of over 20 percent of the Liquefied Natural Gas (LNG) sold worldwide last year, and where there has been a threat of a major strike by workers in that sector – if a shortage arises due to that, Japan and Chine will purchase LNG which would normally be destined for Europe, thus driving prices up further.

"Unfortunately, Russian LNG has also been moving into Europe," he added.

Allikson referenced natural gas futures, noting that whereas today the prices for the next month are €35 euros per Mwh, winter prices already break the €50-mark, which will make for another tough winter for industry, he said.

This "isn't as expensive as a year ago, when gas prices saw record highs, but it demonstrates that Europe is still concerned about what's going to happen in the winter," he went on.

Eesti Gaas' announcement that they would be raising prices for consumers via their most popular, flexible package, by 20 percent from October, relates to a pricing logic also based on futures, he added.

"Eesti Gaas and other sellers are looking at what futures transactions show. If these are higher in October or November, they proactively raise the price, as they know that their purchase prices in this period will be higher," he added.

A major, mostly subterranean natural gas storage facility is at Inčukalns, in Latvia.


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Editor: Andrew Whyte

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