For six months, European natural gas prices skyrocketed higher almost every day. The soaring prices made sense. Gas inventories in Europe were low following higher-than-normal demand last winter. Economies were recovering from COVID-19. Russia was curtailing gas deliveries. It all added up to a likely supply shortage during the winter of 2021-22. And the market did what markets do: anticipate. Even though the next winter season was months away, gas buyers went to work, stocking up on supplies like squirrels gathering nuts. The more prices increased, the more panic buying kicked in. By last Tuesday, October 5, the European TTF price was up more than 5X what it had been on May 1. Then, on Wednesday, a few comments from Vladimir Putin seemed to pop the bubble, and within a few days the Dutch TTF price was down 27%. Is everything OK now? Was the gas-price run-up all just speculative buying and short covering? Or is a supply crunch still on the horizon, and this is just the calm before the storm? In today’s RBN blog, we explore those questions.
We will long remember 2021 for natural gas disruptions, including the February Deep Freeze, Hurricane Ida production impacts, and of course now the Great Global Natural Gas Shortage. In fact, the Deep Freeze and Ida had small roles in the supply/demand imbalance that’s still playing out.
The global gas imbalance is certainly no shocker. We started wringing our hands about low gas inventories in Europe and much tighter gas markets back in May in Summertime, where we considered factors like depleted stocks due to strong demand last winter, various production curtailments around the world, LNG shipping delays at the Panama Canal, and a recovery from the depths of the COVID meltdown. Then things got even worse, with a hot summer in Europe increasing gas demand, lower production from European gas fields, reduced deliveries from Russia, and European buyers consistently being outbid for LNG cargoes by Asia. As the magnitude of the imbalance ballooned, we’ve posted more than a dozen RBN blogs on the topic, most recently Hear My Train A Comin', It's Too Late, and To The Moon And Back just last week.
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