European Natural Gas Prices Decline

Since June of this year, the main natural gas benchmark prices in Europe have already doubled, with the European benchmark natural gas price at the Dutch TTF hub reaching a new record of 236 euros per megawatt-hour. In the United States, the price of natural gas has also risen by more than 150% so far this year. What is the specific reason? I think everyone knows that it is because Russia has reduced its supply of natural gas to Europe.

But now a strange phenomenon has occurred, that is, the price of natural gas in Europe has plummeted. According to data, the price of natural gas in Europe has fallen by 9.5% to 220 euros/megawatt-hour. What is the reason for this? Is it possible that Russia's energy card has really become ineffective?

Next, I will talk about the competition between Russia and Europe over natural gas from three aspects.

First, why has the price of natural gas in Europe plummeted?

Since the Russo-Ukrainian conflict, Russia has reduced its export of natural gas to Europe. Let's look at a set of data, Russia's gas supply to Europe last year was 188.6 billion cubic meters, and this year the EU will reduce its import of Russian gas by about 100 billion cubic meters. Such a large gap in natural gas supply is not something any country can fill.

So in the first half of this year, we all saw that the price of natural gas in Europe and even the United States was soaring. Russia has also been trying to prolong this situation until winter, when due to the surge in energy demand, Europe will have no choice but to give in, and Russia will win without fighting.

But Europe naturally also considers this situation. Faced with the rising price of natural gas day by day, Europe also has to prepare in advance, that is, to store natural gas in advance. After all, it is better to be expensive than to have nothing.

Since Russia has significantly reduced its natural gas supply to the EU, the EU has imported natural gas from the North Sea gas fields in Norway and the UK, as well as from Azerbaijan, North Africa, and the North Sea. In addition, the EU has also purchased a large amount of high-priced natural gas from the United States.

Let's look at a set of data. Data from the U.S. Department of Energy earlier showed that in April of this year alone, five European countries - France, Spain, the UK, the Netherlands, and Poland - accounted for 54.1% of the total U.S. liquefied natural gas exports. This means that this is the first month in history when the EU's import of liquefied natural gas from the United States exceeded the import of pipeline natural gas from Russia.

Through these data, we can see that Europe has actually been preparing for the winter early on.According to data from European natural gas infrastructure, as of now, the EU's natural gas storage volume has reached 80.17%. Previously, the EU required member states to fill their natural gas storage to 80% of total capacity by November 1st. It appears that the target has been achieved ahead of schedule.

Currently, Germany's storage volume has also reached 83% of total capacity, with the expectation of achieving the goal of 85% of total capacity a month early. The German Energy Storage Initiative Association stated that when Germany's natural gas reserves are full, they can supply 256 terawatt-hours of electricity, which is approximately a quarter of the country's annual energy consumption.

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Industry insiders have pointed out that the progress of European natural gas reserves has exceeded expectations, and the news of the EU's potential intervention in the natural gas and electricity markets has affected natural gas prices. This is also a demonstration of the EU's confidence following the Russia-Ukraine conflict.

Of course, it is not surprising that the price has dropped after so much high-priced gas has been stored.

Secondly, will European natural gas prices continue to rise?

When it comes to whether European natural gas prices will continue to rise in the future, it depends on whether there will still be a shortage of natural gas in Europe. Currently, before the arrival of winter, Europe needs to address a natural gas shortage of 12 billion cubic meters in order to cope with the heating season, which means reaching more than 90% of natural gas storage capacity.

Müller pointed out that if the supply of Russian natural gas is completely halted, even if Germany fills its underground natural gas storage facilities to 95% of their total capacity by November, Germany's natural gas reserves would only be sufficient to operate heating and industrial facilities for about two to two and a half months.

At present, the "Nord Stream 1" natural gas pipeline, which transports natural gas from Russia to Germany, is operating at only 20% of its maximum capacity. Moreover, Russia has now suspended the transportation of Nord Stream 1 natural gas for pipeline maintenance. The original plan was to suspend it for three days, but now it is uncertain how many days it will be halted, which depends on Russia's mood. Therefore, given this situation, if the situation does not change this winter, Europe will definitely still lack natural gas.

Senior analysts have indicated that Europe's early achievement of natural gas storage targets has played a certain alleviating role. However, considering the low volume of Russian gas supplies, the risk of natural gas supply during the European winter still exists.

Russia has also clearly told Europe that the price of natural gas is expected to reach 5,000 euros per thousand cubic meters by the end of the year. There are now member states within the EU calling for a price cap on natural gas. Energy ministers from various countries will hold an emergency meeting to discuss proposals such as limiting the price of natural gas used for electricity production, as well as market intervention measures.So, this winter, it is certain that the natural gas prices in Europe will rise without any surprises.

Thirdly, when will the European energy crisis be resolved?

The European energy crisis is a crisis, but it is not a fatal one. Because in the short term, although there is no natural gas, can Europe burn coal? Of course it can. If survival itself becomes a problem, who would care about carbon neutrality? Although doing so sets back Europe's clean energy, it is also a choice of the lesser of two evils.

In the long term, Europe is also negotiating with countries such as Qatar, Azerbaijan, and Algeria to find new natural gas suppliers to replace Russian gas. Although the construction of this infrastructure will take three to five years, it is also another solution for Europe after the absence of Russia, a major energy country.

On the Russian side, due to the reduced supply of natural gas to Europe, it can only place more hope in China. However, the price of natural gas is too expensive, how many people in our country can afford natural gas? Besides, due to Russia's decoupling, Venezuela and Iran also want to occupy Russia's natural gas market.