Gas prices could even spike higher amid panic buying

Oil&Gas Materials 2 October 2021 09:34 (UTC +04:00)
Gas prices could even spike higher amid panic buying

BAKU, Azerbaijan, Oct.2

By Leman Zeynalova – Trend:

In the near term, gas prices could even spike higher given the ongoing panic buying, but they will start to fall in the coming weeks, Trend reports with reference to Capital Economics, UK-based research and development company.

“However, if nothing else, current prices should incentivize supply. In particular, we think that US production will pick up. So far, US shale producers have shrugged off the price rise and drilling activity has remained subdued. But the EIA is forecasting a 3.5 percent rise in US natural gas output in 2022 and we think drilling will start to recover in the coming months,” the company said it is latest report.

At the time of writing, European gas prices (TTF) have risen by 600 percent since the start of March, which is a significantly larger rise than earlier price surges. Asia LNG prices have risen by 520 percent and US natural gas prices have risen by 120 percent. What’s more, the incidents of adverse weather this year have had a global reach and occurred throughout the year. This has meant that there have been only limited opportunities for stock building.

“Despite the differences, we think that these latest moves in natural gas prices have more in common with earlier weather-related spikes than with the structural change in Japan’s energy demand. Assuming weather conditions normalize and high prices incentivize supply, we think that prices will have fallen back by the end of next year. Our current forecasts are for the price of European gas (TTF) to stand at €20.0 per MWh by end-2022 (from €97 today), Asia LNG at $10.0 ($31.5 today) and US gas at $3.0 ($5.9 today),” reads the report.

That said, prices will probably remain historically high for much of the next six months, according to the company.

“That’s owing to the Northern Hemisphere winter and because it will take some time to rebuild stocks and for producers to ramp up supply. Another possibility is that there could be a jump in Russian gas exports to Europe if and when the German regulator and EU Commission approve the controversial Nord Stream 2 pipeline. Of course, no discussion of natural gas is complete without the caveat that unseasonable weather could upend our projections at any point. At the time of writing, the consensus of weather forecasters expects a quite severe winter in the Northern Hemisphere, which is another reason why we think prices will remain high for some time yet,” says the report.

Capital Economics says that there is also the very real risk that the series of extreme weather events seen this year is not just an aberration.

“Most climate scientists assign these events to global warming and climate change. Accordingly, they may be the new norm. Even so, climate change need not always create additional power demand. The northern hemisphere had very mild consecutive winters in 2017-20. And on the subject of climate change, it could be the case that this latest “energy crisis” around the supply of fossil fuels could actually accelerate the transition to renewables.”


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