Natural gas: Checking the price increase after stopping flows through Ukraine

Its rise has led to the interruption of flows through Ukraine since the beginning of the year, as well as cold winter in much of Europe. But price increases appear to be “controlled” and have nothing to do with the crisis conditions that prevailed two or three years ago. The quantities of Russian gas taken from Central-East European countries, such as Slovakia and Austria, via the pipeline passing through Ukraine, account for only 5% of Europe’s total demand and can therefore be covered relatively easily with additional LNG imports. CORVERSE The possibility of imports of LNG is greater this year as export capacity increased from the US, Europe’s largest supplier, with the addition of two new large gas conversion plants in a liquefied form. At the same time, in 2024, LNG imports from Russia increased to levels – records, thus ensuring that the needs of the region were met, even in harsher winter conditions. According to Reuters data, Europe’s total LNG imports ejected 23% compared to November, reaching 10.89 million cubic tons, although they were 7.9% lower than a year ago. On the other hand, increased demand for natural gas for heating has led to a reduction in the European Union’s reserves, with the fullness of its underground tanks being formed at 68.2% on 8 January versus 83.5% a year ago, according to KYOS European Gas Analytics. CORVERSE The reduction in stocks is likely to keep natural gas prices at higher levels than last year, but there are no conditions of crisis that we saw from autumn 2021 until the end of 2022. It is noted that at the peak of the crisis, in August 2022, the Amsterdam Stock Exchange (TTF) reference price was launched at EUR 250 per megawatt hour, 10 times the average of previous years. In 2023, the TTF prices were degraded, thanks to the replacement of the missing quantities – due to the shutdown of the Russian Nord Stream pipeline – with Norwegian gas and imports of LNG from a number of suppliers, first in the USA. In January 2024 prices moved below EUR 30 per megawatt hour, but then moved up and since May they exceeded EUR 40, as market players have since expected that flows through Ukraine to be stopped. The country’s president, Volodymir Zelenski, had repeatedly stressed that he would not sign an extension of the five-year gas transit agreement with Russia, which ended at the end of 2024, as it did. In other words, the interruption of flows through Ukraine was substantially discounted by the market to a large extent. This also explains the fact that prices escalated in the second 15 days of the previous month, reaching just over 50 euros on the first working day this year, but then declined again and on Friday they formed below 44 euros. Source: RES – ICM