The irony of it all. In the midst of Europe’s greatest gas crisis, or, at least, what should have been a crisis, gas prices are not only falling but have at one point actually turned negative.
Caught off guard by a milder autumn and limits to EU storage facilities, Europe is suddenly facing a glut of gas imports which it has nowhere to store.
About 40% of the gas used in Europe goes to households and just over 20% is used to generate electricity. The mild and windy European autumn has tampered with the expected seasonal demand.
The gas spot price is set on a daily basis, depending on demand and depending on how much storage space is available. Normally the heating would have come on in the days, or sometimes weeks, ahead of the turning of the clocks this weekend but with the temperature in the UK sitting around 14 degrees Celsius and some European countries even 20 degrees, the dial on the heaters has yet to turn.
Gas prices at 2021 levels
Prices for the month ahead are now back at the levels before the start of the war in Ukraine and way below the August peaks. Spot prices have fared even worse, occasionally dipping into negative territory as sellers had to pay traders to take their gas.Europe has been importing as much gas as it could afford throughout the spring and summer and its storage capacity is now at more than 94%.
In addition to natural gas, European buyers have also been snapping up LNG from China and the US and European LNG storage and regasification capacity are now facing even worse capacity issues than natural gas.
The worst of it is in Spain where 35 tankers are circling ports waiting to be offloaded as Spain has no more available LNG storage capacity. And even once they are offloaded, the cargo will still have to wait to be regasified in preparation for transport through the European pipelines as the regasifying plants are also working at full capacity.
How long will this last?
Obviously, a change in weather would turn the tables relatively quickly and unless climate change has really done a number on us, it should be around the corner. However, with more LNG still on its way to Europe there will be a buffer of supplies that will work its way through the supply chain.
Another issue is that China has told its state-owned gas importers to stop exporting LNG to Europe and instead keep it for domestic consumption ahead of the winter.
Since the start of Western sanctions on Russian exports, China has been buying up Russian raw materials supplies at low prices and has been reselling some of those back to Europe. The tight domestic Covid restrictions have meant that local demand petered off during the summer and autumn and that more gas was available for exports. But now restrictions are slowly beginning to ease just as the colder weather is about to start and China will need more gas. This restriction will also take some time to make it through the system as cargoes are still on route from China to Europe.
There is scope for further price weakness in the short run but the medium-term looks distinctly like another bout of high demand.
Related Natural Gas ETFs
| Product Name | ISIN | Exchange Ticker | Listing Currency |
| WisdomTree Natural Gas Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi |
GB00B15KY104 | NGAS | USD |
| WisdomTree Natural Gas – EUR Daily Hedged EQi |
JE00B6XF0923 | ENGS | EUR |
| WisdomTree Natural Gas 1x Daily Short AJ Bell Youinvest | Charles Stanley Direct | EQi |
JE00B24DKH53 | SNGA | USD |
| WisdomTree Natural Gas 2x Daily Leveraged Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi |
JE00BDD9Q956 | LNGA | USD |
| WisdomTree Natural Gas 3x Daily Leveraged Hargreaves Lansdown | AJ Bell Youinvest | EQi |
IE00BLRPRG98 | 3NGL | USD |
| WisdomTree Natural Gas 3x Daily Short Hargreaves Lansdown | AJ Bell Youinvest | EQi |
IE00B76BRD76 | 3NGS | USD |
