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Traders To Blame As European Gas Markets Descend Into
Chaos
By
Irina Slav
27June 2023
- EU gas
markets have seen a sudden bout of volatility over the last 10 days.
-
Bloomberg: the gas trading market in
Europe is seeing an influx of traders who do not normally play on
that market.
-
The closure of the Groningen gas
field and supply constraints in Norway have sparked supply security
concerns.
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Earlier this month, natural gas prices in Europe rose twofold in the
space of 10 days, with a single trading day seeing a jump of 27% two
weeks ago. On June 15, prices jumped by 30%. A day later, they dropped
almost as sharply as they had risen, shedding over 20%.
All this happened before the latest events in Russia that rattled
commodity markets. And it will be happening again. Because traders are
crowding the natural gas space, eager to make some money like others
did last year. Volatility has come back to natural gas markets.
Bloomberg reported this
week that the gas trading market in Europe is seeing an influx of
traders who do not normally play on that market but were tempted by
the record profits gas traders made last year.
At the time, gas prices in Europe soared to record heights after the
EU bombarded Russia with sanctions, and Russia responded by decimating
flows along the Nord Stream pipeline. Europe rushed to buy liquefied
natural gas on the spot market, promptly pushing prices to levels
never before seen. Traders made millions.
“Some people thought they could make a lot of money given where prices
had been, but there was an exaggeration of what this really meant for
the gas market,” Citi’s commodity chief Ed Morse told Bloomberg.
“Natural gas markets have proven to be a trap for both experienced and
inexperienced traders,” he also said.
In addition to the trap that is the gas market, there appears to be
actual concern among traders about the sufficiency of gas supply for
Europe. Norway has been going through some extended outages due to
field maintenance, and the Netherlands has reiterated it will close
the Groningen gas field. Both of these suggest doubts over the
security of supply going forward.
“Reports of Groningen closing down adds to a host of other news that
are bullish for gas prices,” ICIS analyst Tom Marzec-Manser told the
Financial Times. “But the price swings are an indication that there is
still a lot of uncertainty over Europe’s gas outlook, and market
participants remain on the edge,” Marzec-Manser also said.
The fundamental problem, however, is not the outages in Norway and the
shutdown of Groningen. As last year proved, there is plenty of LNG to
go around in Europe, for the right price. This year there will be LNG
too. But there will not be space in Europe’s gas storage caverns
because they are already rather full of gas from last year that was
bought at exorbitant prices.
Earlier this month, Reuters’ John Kemp reported that
Europe’s gas storage was at 48% above the ten-year seasonal average,
noting that additions to this storage were slowing down because of low
prices that encouraged more immediate consumption.
Despite the slower rate of additions, Kemp also pointed out, capacity
should be full earlier than last year, and this means drawdowns will
need to begin earlier than last year. This is when prices may whipsaw
again: when both Europe and Asia prepare to enter winter heating
season.
This is also why volatility in gas prices remains so high. It’s not
because nobody knows if there will be enough gas. It’s because if last
year was any indication, there will always be enough gas—for those who
can afford it.
There are plenty of speculators eager to grab the opportunity to make
a quick buck before Europe finally realizes it might be wise to bet on
long-term supply rather than splurging on spot market cargos. And
there is always the risk of an unforeseen event or even a foreseen
one—such as Ukraine’s warning that
it might shut down gas transit from Russia when its contract with
Gazprom expires next year.
By Irina Slav for Oilprice.com
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