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Gas futures prices in Europe and US diverging on Ukraine, Freeport fire

Gas futures prices in Europe and US diverging on Ukraine, Freeport fire

European and US gas prices are diverging sharply as outages, politics and rerouting of supplies all play their part. The hot weather in the south and southeastern parts of the US should have led to higher gas prices but instead, prices dropped following a fire at the Freeport LNG gas facility in Southern Texas.

According to the US Energy Information Administration, the subsequent closure of the facility will have a ripple effect on US LNG gas exports, reducing them by approximately 2 billion cubic feet per day, or 17% of the country’s total LNG export capacity.

Looking at the bigger picture in the US, politically there is no appetite for higher energy prices, be it gas or oil. This week President Biden took a shot at oil companies, ticking them off in an open letter for charging high margins at a time when fuel prices at the petrol stations are rising sharply and said he is considering invoking emergency powers to boost refinery output.

While the letter didn’t specifically refer to gas prices it is quite clear that the current administration wouldn’t be keen on a massive rise in electricity prices either (which would be the side effect of a rise in gas prices), and that this market could also face political intervention should there be a sharp rise in gas prices.

Meanwhile in Europe…

In contrast, Dutch gas prices rallied past €98, a previous resistance level and powered ahead to hit €127.50, as the tug of war over Russian gas imports into Europe continues. Russia is slowly decreasing the supply of gas into Europe through the Nord Stream 1 pipeline in a political statement over sanctions.

This week the screw was tightened even further over a visit of European leaders to Ukraine which will likely include a conversation over arms supplies to the country. The Nord Stream pipeline which is owned by Russia’s state-controlled firm Gazprom is now supplying gas at only 40% of its full capacity.

Europe’s reaction was twofold; on the one side trying to reduce consumption – Germany has already started advising consumers to use less gas over the coming period – and on the other hand, securing supply from elsewhere.

The EU has just signed a deal with Israel and Egypt by which Israeli gas will be transported to Egypt, liquefied there and then loaded onto tankers to be shipped to Europe. This particular deal not only secures some immediate additional gas flow into the EU but also makes sure that the quantities will increase over time.

Israel has discovered new offshore gas fields in the last ten years and is in the process of doubling its current output. Before this latest deal, the EU had already signed similar agreements with the US and Qatar in preparation for the shortfall of Russian gas. All of this will still take time as, under the current sanctions protocol, the full effect of the European embargo on Russian gas imports will only come into effect by the end of 2022. Hungary, Slovakia and the Czech Republic will remain exempt.

Looking at the latest gas price move, if prices close the week above the current resistance level of around €127, chart-based buying could potentially push prices higher by another €20.

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

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