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Gas price continues to fall on the EU spot market

We witnessed a decline in gas spot prices in Europe at the end of last year 2022. Prices peaked on 22 August 2022, when it reached EUR 341.20/MWh. From this point onwards, it gradually decreased to the current value of EUR 27.952/MWh (17 July 2023). The reason for the decrease was the warmer winter and the sufficiently large liquefied gas stocks in EU countries. These came as a partial replacement for the shortfall of Russian gas to Europe due to Russia's invasion of Ukraine.

Snímek obrazovky 2023-07-21 v 20.03.10

Graph: spot gas price over a 5-year period. Source: Trading Economics *

EU prepares for winter 2023-24

In 2022, the EU increased LNG imports by almost 70% YOY over 9 months. Higher European spot prices compared to prices in Asian markets have helped Europe secure additional supply. In fact, the EU has set a target to fill storage tanks to 90% by 1 October 2023. At the same time, it has drawn up a plan to reduce LNG demand across member states - by 15% by March 2023. However, it will still have to compete for LNG in the global market and will remain vulnerable to the dynamics of development.

Wider market context vs. regulatory efforts

The European Commission's proposals to reduce high energy prices are another factor putting pressure on gas prices. These proposals include joint purchases of natural gas by EU countries, the creation of a new LNG pricing standard, limiting price volatility on the TTF gas exchange, and the establishment of solidarity rules in the event of supply shortages. The Commission's recent proposals include only a temporary price correction mechanism to prevent extreme price fluctuations, rather than the more permanent price cap proposed by some Member States, which could affect the attractiveness of the European market for alternative gas supplies.

Adam Austera, Senior Analyst at Ozios

* Past performance is no guarantee of future results        

Sources:

https://www.europeangashub.com/the-rise-and-fall-of-the-dutch-groningen-gas-field.html

https://www.fitchratings.com/research/corporate-finance/european-gas-spot-price-down-due-to-warm-weather-vast-lng-supplies-20-10-2022

https://www.reuters.com/business/energy/netherlands-end-groningen-gas-production-by-oct-1-2023-06-23/

https://tradingeconomics.com/commodity/eu-natural-gas

https://www.bruegel.org/policy-brief/european-union-gas-survival-plan-2023

https://www.google.com/search?q=EU+plans+to+reduce+gas+demand+by+13%25&rlz=1C1GCEA_enSK1051SK1051&oq=EU+plans+to+reduce+gas+demand+by+13%25&aqs=chrome..69i57j33i160l3.351463318j0j15&sourceid=chrome&ie=UTF-8

Disclaimer:

The material herein is considered as marketing communication under the relevant laws and regulations, and as such is not a subject to any prohibition on dealing ahead of the dissemination of investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and should not be construed as containing investment advice, or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. The published content is intended for educational/informational purposes only. It does not take into account readers’ financial situation, personal experience or investment objectives. APME FX Trading Europe Ltd makes no representation that the information provided is accurate, current or complete; and therefore, assumes no liability for any losses arising from investments based on the supplied content. The past performance is not a guarantee of future results.

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