Can Natural Gas Hit $4 in the Summer?
2023.05.16 09:22
Global gas markets are slowly rebalancing, but Russian gas supplies to Europe are expected to remain limited until 2023.
In 2022, European and global gas markets faced a sharp reduction in gas supplies after Russia cut its supplies through European Union pipelines by 80%. This has led to the emergence of a global energy crisis.
Thanks to the pleasant climate, the increase in the export of :Liquefied Natural Gas and the drastic decrease in the demand for gas, European stocks are filled to around 60%. This helped cushion the shock of the pandemic.
The IEA indicated in a report on the gas market that diminishing market concerns coupled with current reserves are grounds for cautious confidence about security of supply. This gives an indication that there will be sufficient gas supply during the summer.
‘While forecasts for gas markets in 2023 are encouraging, future volatility cannot be totally ruled out…global gas supply will remain quite tight by 2023 and the global balance is subject to a surprisingly large variety of possible scenarios,” says the report.
There are many risks, such as unfavorable weather conditions which can lead to a shortage of LNG and the possibility of a decrease in Russian supplies to Europe. All this could renew tensions on the markets and increase price volatility.
Europe has seen an unprecedented drop in gas consumption of 16%, or 55 billion cubic meters (bcm), during the 2022/23 heating season. This is good news that shows that Europe is becoming more attentive to sustainability.
The study results show that the EU only needs half the level of storage injection recorded in the summer of 2022 to meet the 90% storage target by the start of the 2023/24 heating season.
Liquid natural gas now makes up for two-thirds of the European Union’s gas imports, meeting one-third of its gas demand during the 2022/23 heating season. A 25% increase was observed, amounting to around 20 bcm for European LNG imports, while more than 45% of the additional supply comes from the United States.
Global supply of Liquefied Natural Gas (OTC:) (LNG) is projected to increase by just 4% by 2023, which is less than the expected reduction in Russian gas supplies to Europe, so the outlook is not as bad as it seems from appearances.
At the moment, I am checking inventory levels on a weekly basis to evaluate whether to buy gas. Gas supply is currently plentiful due to current record production.
With a summer of drought and extreme temperatures expected, we could see inventories shrink due to higher cooling demand. The first heat waves will probably arrive in June, and that’s when I plan to buy natural gas for the summer.
My calculations indicate that prices could be $4 in the third part of the year if the predicted extreme heat occurs.
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Author’s note: The information and content provided on this site should not be considered as an invitation to invest in the financial markets. The Content is a personal opinion of Antonio Ferlito.
