(Montel) European policymakers should remain on guard even though it appears the worst of the energy crisis is over with gas prices now at two-year lows in the wake of record highs last year, said an executive with Swiss energy group Met.
“I believe – at the moment – they [policymakers] have a false sense of security,” Joerg Selbach-Roentgen, CEO of Met’s unit in Germany, told Montel at the E-World fair in Essen this week.
Europe’s benchmark TTF front-month gas price has plunged from last year’s record above EUR 340/MWh to current levels around EUR 25/MWh – the lowest in two years.
Gas prices had spiked following Russia’s invasion of Ukraine and sharp cuts in gas supplies to Europe, especially with the halt in flows through the Nord Stream pipeline between Russia and Germany.
But prices have fallen back thanks to European efforts to curb gas demand, introduce targets for gas in storage and wean off Russian pipeline supply by importing more LNG. A mild winter has also helped.
In Germany, the EU’s biggest gas consumer, the government quickly approved several new projects for LNG storage and infrastructure.
However, the country would need to follow up “in lightning speed on not just building the infrastructure, but using it,” Selbach-Roentgen said, adding that Europe overall would need to procure “a lot more” LNG with long-term contracts.
By the turn of the year, Europe's LNG import capacity stood at 280bcm, compared to total imports of around 142bcm. In 2023, imports in the period from January to April averaged 13bcm/month. This could still lead to large amount of unused capacity this year, according to Montel calculations.
Another question was whether Russian gas supplies to Europe would remain at current low levels or decrease further, said Gyorgy Domokos Vargha, CEO of Met International.
Russia’s piped gas flows to Europe are now roughly 40mcm/day, or less than 10% of volumes delivered prior to the war in Ukraine.
Other challenges could stem from an increased industrial demand or production and maintenance issues with key European suppliers either for pipeline gas or LNG, said Vargha.
For instance, heatwaves could drive power demand and spur production from gas-fired power plants, while the Asian LNG appetite would also play a role in the future, he added.
The Met executives’ concerns were shared by Peder Bjorland, head of gas trading at Norwegian oil and gas giant Equinor. Norway is now Europe’s biggest supplier of gas, following the reduction in flows from Russia.
Despite the drop in gas prices, he pointed to Q1 2024 prices being close to double that for next month.
“We do see a lot of risk into the winter, and I think that is what most of the markets sees despite the high gas storage levels,” he told Montel at the energy fair E-World this week.
“There is only so much gas you can store, you can’t store enough for the whole winter.”
In Germany, for instance, gas storage units can hold around 250 TWh of gas, which compares to a consumption of 847 TWh last year, mostly during winter.
Equinor would continue to export a maximum amount of gas to Germany and the Netherlands this year despite the low prices, he added, confirming previous comments made from Norway’s oil and energy ministry.