The crisis in the gas market in Europe could return next winter, with the possibility of prices doubling with a revival of demand.
Mild temperatures and efforts to curb consumption have caused benchmark natural gas to fall below 40 euros per megawatt-hour from record levels reached last August amid pressure from Russia on pipeline flows. Complacency among consumers, from industries to power plants and households, risks a tightening market later this year, according to delegates at the Flame Gas conference in Amsterdam.
Europe was spared this winter by mild weather and weak demand for LNG from China, but it remains to be seen whether these conditions will last. One-month winter contracts are already pointing to gains, but the market may be underestimating how bullish it can be with the first signs of cold weather.
“Early winter cold is the scariest,” Goldman Sachs Group Inc. analyst Samantha Dart said in an interview on the sidelines of the conference. Prices above €100 remain “very realistic”, although weak demand may delay the rebound the bank previously expected in August.
It’s also unclear how much of the demand destruction caused by last year’s price hikes is permanent, and how much is price-sensitive and may return.
The market will remain tight until a new supply of liquefied natural gas comes online after 2026, according to trading giant Vitol Group.
The market “is going to be much more vulnerable to risk,” Stuart Sanders, Vitol’s head of short-term LNG trading, told the conference.
