Last week, prompt contracts on the European gas hubs got even closer to record highs registered in March 2022. Bearing in mind supply/demand fundamentals that come into play in week 28, few people would be surprised to see the region’s market going through another period of high price volatility.
The developments around the Nord Stream, which has become perhaps the main newsmaker for the region´s energy market since mid-June, should again have a major impact on prices. The pipeline is scheduled for an annual maintenance from 11 July to 21 July.
And this week it does not just end with the Nord Stream undergoing its planned maintenance. While there will be less supply from Russia, air cooling demand for gas is expected to rise in week 28 as the second heatwave set to hit many parts of Europe. The latest weather model runs predict that high temperatures may be accompanied by weak winds across NWE, thus limiting players´ access to alternative energy sources.
Taken together, lower supply and higher demand can combine to produce a volatile mix. Especially in today’s market environment that is marked by a high degree of stress, to say the least.
To see this, one needs only to look at how the price spread between the Summer 2023 and Winter 2023-24 contract has changed over the past month. Current events are increasingly viewed by players not merely through the lens of preparation for the coming winter season, but also as a projection of how the European gas market is going to look like next summer.
Source: Yakov Grabar (LinkedIn)