The price of gas on the Dutch Title Transfer Facility (TTF) natural gas market rose to nearly €37 per cubic meter this past Friday, but started out with a slight decline on Monday.

Energy expert and Baltic Energy Partners OÜ partner Marko Allikson told ERR that from the second half of February through June, the price of natural gas gradually increased from €23 to €34-35 per megawatt-hour (MWh). By mid-June, it felt in Europe as though storage facilities were filling up well, there were no significant risks and all anticipated fears thus dissipated.

"But what's happened in the last three weeks is primarily the fact that there have been heatwaves in several parts of Asia, which means that more LNG has been purchased than usual in India, Japan and South Korea," Allikson explained.

This also means having to pay more to acquire LNG. "All available free LNG cargoes have rather headed for Asia – primarily from the United States – instead of coming to Europe," he noted, adding that European prices are simply following Asian ones.

Events in the Middle East have certainly recently impacted prices as well, because if there is a risk that natural gas can no longer be sourced from the Persian Gulf, then Qatar is one of the largest exporters in the region.

"If any obstacles whatsoever arise chiefly to LNG headed for Asia, then that has definitely sparked fears among buyers and driven prices up," Allikson said.

Kalvi Nõu, portfolio manager for energy trading at Alexela, likewise highlighted growing tensions in the Middle East as a factor impacting Friday's gas price hike.

Meanwhile, despite the same aforementioned tensions, oil prices are falling. At the beginning of August, the price of a barrel of Brent crude oil exceeded $80, but thereafter began to decline, reaching $75.50 per barrel by noon on Monday.

According to Nõu, however, price movements on the oil and gas markets aren't typically related, as the markets and distribution channels involved are fundamentally different from one another.

He pointed out that the TTF started off Monday with a slight decline, primarily due to sharply falling stock futures and the drop in Asian markets that had occurred overnight, driven by fears of a recession and the increasing likelihood of war in the Middle East.

"Since Israel is a natural gas producer that typically exports gas to both Egypt and Jordan, the threat of war has increased the risk of Israeli natural gas exports being interrupted," the energy trading portfolio manager explained. "That would increase Egypt's need to buy LNG on the global market, thereby increasing overall demand for LNG."

European gas storage levels are moreover at record highs, and a deepening economic recession would even further reduce natural gas consumption, he added.

Russian gas still flowing into Europe

Allikson said that if the heatwaves subside and the geopolitical situation cools, then there will be room again for gas prices to fall, as European storage facilities are full.

"There's actually no such event that could endanger Europe's security of supply, but in the short term, prices are moving up and down depending precisely on the weather and what problems may exist elsewhere in the world," he noted.

In addition to the Middle East, Allikson says that supply issues from Russia are likewise continuing to affect Europe because some of this natural gas is coming through Ukraine, some through Turkey, and Russian gas is likewise still continuing to be brought into Europe.

"There was recently a risk that flows through Ukraine in particular may halt sooner than the end of this year already," he explained. "As things currently stand, it is expected that no more gas will be coming in from Russia at least after the end of the year. But again, these fears, too, have initially been unfounded; gas has continued to come in from Russia."

The energy expert noted that if you look at Russia's share in European gas supplies, for example, in the last month it has been quite close to that of the United States – U.S. LNG flows have decreased significantly as they are primarily being directed to Asia.

"Russian gas volumes have become nearly equal," he said.

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