Twelve months ago, the threat of ‘gas-agedon’ by Vladimir Putin’s Russia sent the prices of this basic fuel for heating and electricity generation into orbit in Europe. Prices were trading up to 1,000% above their historical average, at 340 euros/MWh, in the Dutch TTF market in anticipation of a massive supply cut, power blackouts and shortages in Europe due to Russian dependence. One year later, gas is cheaper than before the war both in the TTF and in the Iberian market Mibgas and in the Henry Hub in the US, now the source of more than a third of European supply.
The contracts with delivery in one month on the Title Transfer Facility (TTF) that are negotiated in Rotterdam were trading this Monday below 50 euros / MWh, their lowest level since the summer of 2021. For its part, the Iberian Mibgas It also moves around those levels of 50 euros in its one-day price, the reference in this market, although in this case it is its minimum since October 2022 when it fell to the range of 20-30 euros.
For both markets, the all-time highs of 345 and 252 euros/MWh, respectively, seem like a thing of the past thanks to the warm European winter, lower gas consumption and, in part, because the large economies of the East, such as Germany and Poland, have pulled from coal for electricity production and have avoided greater pressure on demand, according to experts. The reality now is that gas prices are cheaper than before the start of the war 365 days ago. The TTF then moved above 80 euros, while in the Mibgas the MWh was traded at more than 70 euros.
Where else is the overabundance of gas supply being noticed in the US Henry Hub, which measures the entry prices to the main export terminals in the country. Its price has been below 2.3 dollars / mmBtu, equivalent to about 7.5 euros / MWh, 75% below the maximum it reached in 2022. Actually, Mibgas prices moved in that level before the pandemic and, above all, when gas from Algeria to Spain flowed without restriction.
Why have prices plummeted in the US but have not had an impact on the gas bill in Spain? It is in the acronym GNL or LNG in English, that is to say, that the fuel must be liquefied for its transport in methane tanker at very low temperatures (-160 degrees) to be reheated at destination and distributed in the finalist gas pipeline network of each country. . Therefore, the very low price at origin is multiplied by the costs of regasification, maritime transport, distribution and intermediation commissions of all the parties involved until it reaches Europe.
Europe already accounts for 60% of all US gas exports in the world at the moment, but the winter is coming to an end and demand is no longer tense. Spain maintains a privileged position in this energy trade of LNG from fracking. Since massive exports from the US industry began in 2016, Enagás has become one of the key recipients of this fuel.
Only South Korea and Japan have bought more LNG from the US than Spain in the ranking accumulated since then, despite the fact that during the last twelve months France, the United Kingdom and the Netherlands have regularly received more methane tankers with American gas. Despite the sanctions on energy matters by the European Union (EU), Spain has also triggered imports from Russia, which in 2022 accounted for 12% of all gas consumed and last January, 18%. As published by ‘La Información’, Spanish consumers allocated the equivalent of 3,200 million euros to the purchase of Russian gas last year, and some 7,400 million to the US.
The focus of the market is on the coming winter
But the winter of 2022/23 is already seen for judgment and the gas supply chains have endured, as has the strategy of progressive filling of storages in Europe. Operators are already pointing to the upcoming winter season as the true litmus test of Europe’s ability to wriggle out of Russia’s gas dependency, especially after the destruction of the two Nord Stream gas pipelines to Germany that, if working, they would probably have turned the Germans into a gas re-exporting power like Spain with Algeria before the closure of the tube that passes through Morocco.
That circumstance changes everything. Unless in the Old Continent licenses for the exploration and extraction of gas in the European subsoil are rehabilitated, the price tension will continue to be present. “Prices are likely to stay structurally higher than they were before the Russian invasion,” Henning Gloystein, energy director at Eurasia Group, told Bloomberg.
What are we talking about? Actually, the current ones. Before the war or the pandemic, the price of gas in Europe has traded around 10 euros for years, precisely due to the excess export capacity of the US and Russia, which has made them the largest producers. of the world, imitating the role of the Middle East with oil.
However, there are experts who see the situation in a less serious way, both on the side of competition between producers and on the side of reduced demand due to lower consumption and diversification of sources. “The milder climate has reduced demand for heating and as a result, Europe is experiencing an unusual increase in gas storage in the dead of winter. Gas storage is 84% full compared to a five-year average for the 70%