Natural gas: high prices for the next few years

Europe’s biggest energy companies are bracing for an extended period of high natural gas prices as their hopes for further price declines due to a relatively mild winter and large volumes in storage tanks are not confirmed.

Natural gas prices in Europe are down about 80% from their summer 2022 highs but remain above historical averages, Bloomberg reports. Shell expects volatility to persist in the short term, while Repsol warned that high prices could be due to structural factors due to production bottlenecks.

“Respite” is over

As the economic agency notes, lower natural gas prices in recent months have given end-users and policymakers a “breather”, allowing supply concerns to ease and helping to reduce the historically high level at which it reached “inflation”. A fairly mild winter led to a curtailment of the use of natural gas for heating, while an increase in LNG flows helped buyers replace supplies from Russia.

However, corporate earnings reports underscore that the favorable conditions experienced this winter may not be repeated this year. So the old continent will once again face the possibility of natural gas shortages unless it reduces demand, as the International Energy Agency has warned.

Natural gas markets are “in better shape than many expected a year ago,” said IEA Executive Director Fatih Birol. “But the reality is that the winter of 2023-2024 is likely to be the real test.”

Competition with Asia

Forecasters expect northwestern Europe to experience colder weather in February than the first few months of winter, as temperatures are expected to drop by the end of next week. But while this event could heighten market fears of increased demand, for now, there is a general feeling that Europe has managed to overcome fears in anticipation of cold weather.

But Shell has already warned that by 2030 European gas demand will increasingly outstrip supply, keeping prices high. “It looks like Europe’s increased demand for LNG will lead to increased competition from Asia for the limited new volumes that will become available over the next two years and could dominate the LNG trade in the long term,” the Dutch-British multinational said.

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