Natural Gas Prices in Europe Experience Renewed Volatility, Causing Concern Among Traders

Natural gas holds near two month high in Europe have experienced renewed volatility after a year of relative stability, causing concern among traders. European LNG prices rose 2.5% on Monday to EUR 29.13 after hitting a low of EUR 28.05, and are now up 6.5% in April. Prices peaked on April 17 but have trended lower since then as storage levels remain seasonally high. The gas price rise on Wednesday was attributed to the passage of the foreign aid bill in the US Senate, which included a broadening of sanctions on Iranian oil.

While demand remains muted and the region exited the heating season with the highest stocks on record, industry players see risks mounting. Prices are responding, with traders gathering at the Flame conference in Amsterdam this week expressing worries about the upcoming winter season. Factors influencing the volatility include uncertainty over remaining Russian gas flows through Ukraine, rebounding gas demand in Asia, and potential disruptions in the US during the hurricane season and at production facilities in Europe's largest supplier, Norway.

Why this matters: The renewed volatility in natural gas price volatility driven by supply-related news has significant implications for the European energy market and the broader economy. As traders and industry players express concerns about the upcoming winter season, the uncertainty surrounding gas supplies and demand could lead to further price fluctuations and potential energy security risks for the region.

The International Energy Agency (IEA) predicts a 2.3% increase in global gas demand driven by Asian markets for 2024, driven primarily by the expanding economies of Asia. Despite a mild winter overall, the 2023/24 heating season experienced several cold spells that resulted in record-breaking demand spikes across key Northern Hemisphere markets, highlighting the critical importance of gas supply flexibility for energy security. The IEA notes that high storage levels at the end of the heating season, particularly in Europe, could contribute to further easing of market fundamentals over the summer months, but significant uncertainties remain, including potential delays in new liquefaction projects, geopolitical tensions, and ongoing challenges with existing infrastructure.

The futures market for next winter is the most expensive on the curve, indicating a risk premium. Competition between Europe and Asia for LNG supplies is also a concern, as China's LNG imports have increased and other Asian markets are showing growing appetite. "A colder-than-normal winter could also increase consumption, reducing demand flexibility," said a trader at the Flame conference in Amsterdam.

Key Takeaways

• Natural gas prices in Europe remain volatile after a period of stability.
• Factors driving volatility include uncertainty over Russian gas flows, Asian demand, and supply disruptions.
• Industry players express concerns about the upcoming winter season and potential energy security risks.
• Global gas demand is projected to increase by 2.3% in 2024, driven by Asian markets.
• Futures market for next winter indicates a risk premium, with competition for LNG supplies a concern.