European Natural Gas Prices Continue Ramping Up Amid Australian Supply Disruption
The upward trajectory for natural gas prices is anticipated to elevate persistently in the imminent months as per the analysts dealing in energy. The natural gas futures capered to nearly 40 percent as on August 9, 2023.
Concerns over potential supply disruptions in Australia led to a significant increase in the front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for natural gas trading. The price reached its highest level since mid-June, rising to an intraday high of more than 43 euros ($47.4) per megawatt hour before later declining; it was last observed trading at around 36.6 euros.
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In the U.S., gas futures for September delivery on the New York Mercantile Exchange increased by 6.6% on Wednesday, settling at $2.96. This reflected their best daily performance since mid-June and the highest closing price since early March.
The surge in gas prices was attributed to news of a possible strike at major liquefied natural gas (LNG) facilities in Australia, where workers are campaigning for higher pay and improved job security. Zongqiang Luo, a gas analyst at Rystad Energy, suggested that the price spike was a reflection of the increasing likelihood of this strike materializing. Luo noted that such a strike, potentially led by Australian workers at Chevron and Woodside Energy Group, could disrupt operations at four LNG facilities and affect LNG supplies during ongoing heatwaves, despite Europe's substantial gas inventories.
According to Luo, a strike of this nature could disrupt roughly half of Australia’s LNG export capacity, potentially causing many Asian buyers, including significant purchasers like China and Japan, to seek alternative sources for their LNG cargoes.
As Europe reduces reliance on Russian fossil fuels due to Russia's Ukraine invasion, gas prices are surging, causing concern across the continent. John Evans, a PVM analyst, highlighted the persisting risk of a supply shortfall, despite European countries securing alternative gas deals.
He emphasized Australia's rise as a leading LNG exporter, but also its production issues that are exacerbating European supply security concerns. With winter approaching, these concerns are driving European buyers to the cash market. Evans also noted the ongoing force majeure in Nigeria, following severe flooding, which continues to contribute to market tightness. Currently, Evans sees no clear disruptions that would hinder this upward price trend.
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According to Procurement Resource, the global natural gas market is experiencing notable volatility, with prices anticipated to maintain an upward trajectory due to various factors. Potential labor strikes in Australia’s major LNG facilities are raising supply concerns, further intensified by Europe’s shift away from Russian gas amid geopolitical tensions. These dynamics are leading to heightened supply security worries as winter approaches, with significant LNG producers like Australia and Nigeria facing production issues and force majeure conditions, respectively. These factors contribute to an uncertain near-term outlook for the global natural gas market.
