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Robust demand and supply disruptions are setting the stage for much higher — and more volatile — natural gas prices this summer.
First off, Asian consumption is staying strong, leaving less liquefied natural gas for Europe.
India keeps taking some shipments, even as the worst of a heat wave looks over. Hotter-than-normal weather looming in Japan may spark more purchases, and Egypt also is looking for cargoes, flipping the exporter to an importer for the first time in years.
To make matters worse, supply has been pretty shaky of late.
A key LNG plant in Australia is down, following similar outages in Brunei and Malaysia last month. They’re relatively small hiccups individually, but collectively they’re taking much-needed fuel out of the market.
A brief outage in Norway earlier this month sent prices surging, while a new international arbitration ruling has added uncertainty concerning remaining flows from Russia. Throw an active Atlantic Ocean hurricane season into the mix, and there’s the potential for disruptions from the US, the biggest exporter.
European storage is currently above the five-year average, but shipments to the region are declining. Imports are down nearly 40% from last year.
Fears of a supply crunch are already materializing in European gas futures. The discount between summer and winter future contracts has steadily narrowed and is near the smallest since March.
Investment funds are getting involved, boosting their bets on higher European prices to the most since January 2022 — the month before Russia’s invasion of Ukraine rattled energy markets.
Gas prices in the US are even showing signs of life, despite being relatively isolated from global moves. Futures climbed to the highest level in five months on a forecast for higher temperatures.
It all paints a picture of a global market that’s starting to teeter, and that risks making fuel more expensive for households and businesses during the hottest months of the year.
— Stephen Stapczynski, Bloomberg News
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