European gas prices jumped nearly 40% on Australia supply fears — and analysts expect further rises

Liquefied natural gas (LNG) storage units at Grain LNG importation terminal, operated by National Grid Plc, on the Isle of Grain on August 22, 2022 in Rochester, England.
Dan Kitwood | Getty Images News | Getty Images

Energy analysts believe the bullish momentum for European natural gas prices will persist over the coming months after futures jumped almost 40% on Wednesday.

Fears over possible supply disruption in Australia saw the front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for natural gas trading, hit its highest level since mid-June on Wednesday.

It rose to an intraday high of more than 43 euros ($47.4) per megawatt hour before paring gains and extended losses on Thursday. The contract was trading at nearly 39 euros at around 12:30 p.m. London time (7:30 a.m. ET).

In the U.S., meanwhile, gas futures for September delivery on the New York Mercantile Exchange rose 6.6% on Wednesday to settle at $2.96, reflecting their best daily performance since mid-June and the highest closing price since early March.

The surge in gas prices came on news of a potential liquefied natural gas (LNG) facility strike at major plants in Australia as workers campaign for higher pay and improved job security.

Zongqiang Luo, gas analyst at energy consultancy Rystad Energy, said the price spike reflected the likelihood of the strike materializing, which would in turn impact LNG supplies during ongoing heatwaves despite ample gas inventories in Europe.

“The potential strike would be led by Australian workers at Chevron and Woodside Energy Group, which may interrupt four LNG facilities,” Luo said in a research note.

They added that the prospect of a strike could disrupt approximately half of Australia’s LNG export capacity and prompt many Asian buyers to try to source their LNG cargoes elsewhere.

China and Japan, for instance, purchased 26 million metric tons of Australian LNG combined in the first half of the year, Luo said, noting this accounted for over 60% of the country’s exports over the period.

“Looking ahead, we expect the bullish outlook for gas prices to continue with fewer LNG imports to Europe, planned maintenance for Norwegian pipelines and continued heatwaves in multiple regions globally,” Luo said.

‘Possibility of a shortfall’

For Europe, the spike in gas prices comes as the euro zone continues to wean itself off Russian fossil fuel exports following the Kremlin’s full-scale invasion of Ukraine.

John Evans, an analyst at brokerage PVM, said that despite countries such as Germany securing large gas deals with other countries, “there still remains a possibility of a shortfall and a reversion to having to buy at spot as seen in 2022.”

“Australia is now the highest exporter of LNG, beating Qatar and the US, but with production issues and compromised gas fields, European buyers are fearful of security in supply and have resorted to tank filling from the cash market before the onset of winter,” Evans said in a research note.

The extension of a force majeure declared in Nigeria in October last year was adding to tightness in the LNG market, Evans continued, with fields struggling to regain production after heavy flooding.

“At present it does not appear that there is anything untoward in the energy sector to upset this rally,” he said.

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