European gas futures prices have plunged in recent days, with some contracts briefly falling into negative territory, as Europe's growing natural gas reserves combined with warmer than expected weather.
U.S. natural gas, which is mainly exported to Europe, is also facing a surplus. As of press time, the price of natural gas in Texas, the main producing area of the United States, has fallen into negative territory due to sufficient production and exceeding the capacity of the pipeline network.
Some people in the industry worry that as Europe's natural gas reserves further increase, the negative price of futures will increase.
European gas storage tanks will be full, LNG ships will be difficult to unload
At present, the filling rate of gas storage in Europe is more than 90%, and the filling rate of gas storage in the main storage centers in France, Italy and Spain is even close to 100%. This has also left some gas shipped by sea with no place to relocate, while the glut of LNG supply in other regions is likely to worsen in the next two to three weeks. Because 60 liquefied natural gas (ING) cargo ships have been slowly sailing around northwest Europe, the Mediterranean and the Iberian Peninsula.
Previously, European countries purchased large quantities of LNG after the European Commission in June asked countries to start storage operations earlier. Germany has passed legislation setting targets for gas storage. Germany had planned to reach its target of 95% gas storage capacity by November 1, but reached that target on October 14 ahead of schedule. At full capacity, Germany's gas reserves could supply 256 terawatt-hours of electricity equivalent, or roughly a quarter of the country's annual energy consumption, according to the German Energy Storage Initiative Association.
On October 24, the main contract of European TTF natural gas futures fell to 96.5 euros/megawatt-hour, a one-day decline of 15%, a new low of nearly 4 months, and individual contracts once fell to negative values. Just two months ago, on August 26, the contract was as high as 346.5 euros/MWH, meaning a drop of about 70 percent in two months. Despite this sharp short-term fall, European energy prices are still about three times higher than the five-year average for this time of year.
Some European gas traders believe the unusually hot weather could reduce consumer demand for gas and ease pressure on Europe's fuel supplies. The market is starting to worry that too many speculative LNG cargo ships heading to Europe will lead to a severe local gas glut, triggering more spot and even futures prices.
According to weather forecasts, much of the continent will enjoy warm weather at the end of the month, and major European cities will also experience much warmer than normal temperatures as they enter the heating season.
According to the German Meteorological Office, the number of heating degreedays from October 29 this year to November 2 next year will be 27.4, which will be well below the average of 44.1 days over the past 10 years. The number of heating degree-days is a measure of energy demand, and the higher the number, the more fuel is needed for heating.
It is understood that the EU's gas reserves mainly rely on liquefied natural gas from the United States. According to Refinitiv, a financial information service provider, 6.3 million tons of liquefied natural gas were loaded on U.S. cargo ships in September, nearly 70 percent of which went to Europe, leaving U.S. suppliers flush with cash.
However, as the European gas storage tank is about to be filled, the impact of natural gas production areas in the United States also began to appear, the main oil and gas production areas in the United States - Permian Basin in west Texas natural gas prices continued to fall sharply, Beijing time on the evening of October 25, as of press time, the above trading prices have fallen to negative, for the first time in the last two years.
Most of the natural gas production in the Permian Basin in Texas is associated gas, which is a byproduct of crude oil extraction. When pipelines are filled and can't handle more gas, companies often burn off excess gas so they don't have to reduce or stop oil production. The region also suffers from a chronic shortage of pipeline capacity, with the recent price plunge linked to repair plans for two key gas pipelines owned by Kinder Morgan Inc., North America's largest energy infrastructure company.
It should be noted that the benchmark price for natural gas in the United States, the main NYmex natural gas futures contract, is around $5.20, and its main delivery area is at the Henry Hub. Currently, forward contracts for U.S. natural gas futures are generally cheaper than front-month contracts.
So, will US natural gas futures fall into negative territory? In fact, US natural gas futures prices have fallen into negative territory several times before. On April 22, 2019, natural gas prices fell to -40 cents per mmBTU. Natural gas prices in Oja Central, a natural gas producer in the United States, have gone even further into negative territory, hitting a record of -$10 / mmBTU in a single transaction on April 20, 2020.
Source: Securities Times
