The price of European gas continues to fall below EUR 30 per MWh to a two-year low, thanks to record storage levels (66 percent), which is even 17 percentage points higher than usual for this time of year, and abundant supply through LNG channels against a backdrop of gloomier economic prospects with negative implications for gas demand, according to HUP’s analysis Focus of the Week.
Nevertheless, we would be cautious regarding further price declines. On one hand, calculations from Bloomberg show a recovery in the profitability of gas-fired electricity generation, which is higher compared to coal generation. This could increase demand for gas for electricity generation, especially if alternative sources like water, wind, and solar underperform due to weather conditions or if French nuclear output disappoints again.
On the other hand, gas prices in the U.S. as the leading supplier of gas through LNG to Europe have recently started to rise again. Specifically, U.S. electricity producers have significantly increased their demand for gas since March of this year, the number of gas rigs sharply fell in mid-May, and the replenishment of stocks over the last three weeks has been slower than usual.
