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Could we see $ 2 of gas in Europe in 2020? That was the title of an analytical commentary posted on the Oxford Institute of Energy Studies website in October 2019.

Barely two years later, the price of gasoline drops by $ 7. What happened to make this question so redundant?

In 2019, the two European reference gas prices – UK National Balance Point (NBP) and Dutch Title Transfer Facility (TTF) – fell below $ 4 per 1 million British thermal units (Mmbtu), as the US excess liquefied natural gas (LNG) supply has surged into the European market.

Natural gas prices in Europe began to slowly increase from December 2020 and by April 2021 they had already reached the level of October 2019 (around $ 7 for 1 Mmbtu, or € 20 for 1 MWh). However, the price did not stabilize afterwards and the market tightened further. From April to October 2021, the price of TTF futures contracts for delivery in November 2021 jumped more than 350%.

On October 1, 2021, UK and TTF gas futures prices for the November 2021 shipment closed at $ 33 and $ 32 per Mmbtu, compared to the closing prices of $ 7 and 6 , $ 5 per Mmbtu on October 7, 2021, respectively.

Two years after the speculation that gas could drop to $ 2, is the most relevant question now, given the exponential rise in prices: Could we see $ 50 of gas in Europe in 2022?

Either answer to this question has worrying consequences. If the price continues to rise, is it because of fundamental factors that the energy market has yet to admit and rationalize?

Conversely, if the cost is only a temporary hazard, should the world prepare for the bursting of a bubble which could trigger a new crisis situation in one or the other of the markets? Energy ? As the global economy continues to recover from the pandemic, an energy-fueled crash could deal a fatal blow to fragile states.

Kirill Bakhtin, oil and gas analyst at Moscow-based Sinara Financial Corporation, co-edited a report on the Russian gas sector that was released last month.

He told Arab News that it is more difficult to take a health check on the global gas market because it is more fragmented and offers less information than the oil market.

However, Bakhtin has signaled a decline in European gas storage stocks since July – below the average for the past 5 years – as a matter of concern.

Bakhtin said there was a “combination of several factors” behind the dramatic rise in gas market prices, explaining: “First, the economic recovery after the pandemic; second, this year’s hot summer required more electricity for air conditioning.

“In addition, gas production in Europe in the first half of 2021 did not increase compared to the first half of 2020, as on a number of fields in the UK and Norway, maintenance completion times were late. “

Another important factor has been the drop in LNG supplies to Europe, with Asian markets simply willing to pay more for gas.

These factors combined saw demand in Europe in the first half of 2021 increase by 14%, while domestic production fell by 11% and LNG imports by 16%.

“Although Europe’s total gas imports increased by 13% in the first half of 2021, this was not enough to offset the growth in demand and losses due to temporarily suspended production,” said Bakhtin.

TTF gas futures on the Intercontinental Exchange show that quotes for the November 2021 shipment have more than quintupled since the start of the year, from € 17.6 to € 94 per 1 MWh.

In the meantime, prices for the October 2022 shipment, which arrives after the end of the next heating season 2021/2022, are currently at the level of € 44, which represents a more moderate growth of 2.8 times. since the beginning of the year.

Bakhtin argues that this shows that the gas deficit, while apparently not as large as this year, will continue until 2022.

He also asserted that the increasing price of oil compared to 2018 “allows us to forecast a relatively higher gas price, assuming that the prices of these two energy carriers are correlated”.

Sinara’s long-term vision for the TTF price is $ 300 per 1,000 cubic meters.

As for US LNG, currently priced at $ 5.2 per 1 Mmbtu on Henry Hub, it acts as a balancing supplier to the global gas market, according to Bakhtin. Shipping costs included its current cost in Europe are expected to be $ 11 per 1 Mmbtu, but in the longer term its delivery cost to the European market is expected to drop to $ 8 per 1 Mmbtu, according to Sinara’s forecast.

On September 30, the Japan-Korea-Marker (JKM), a benchmark for LNG spot contracts in Asia, rose to $ 34.47 per Mmbtu, or $ 100.3 per 1 MWh, which still implies a premium compared to TTF. This means that US LNG sellers will always have a greater incentive to direct their shipments to Asia than to Europe.

“According to our estimates,” Bakhtin concluded, “the price of gas in Europe is currently at its peak, it will gradually decrease in 2022-2023, although it will still be quite high”.