$2 Gas in Europe: Groundhog Day?
The forward curve for TTF gas prices is suggesting a significant rise in prices in 2021 over 2020. With gas demand in Europe not falling as much this year as earlier thought, an increase in demand next year may be limited. With a likely rebound in pipeline imports in 2021, especially from Russia, this will increase the pressure on LNG imports into Europe, which have remained at high levels this year. Rising Asian LNG demand in 2021 can absorb some of the LNG which would be diverted away from Europe as well as the increasing LNG supply from the US trains ramping up to full capacity. However, the global gas market may only be able to balance at the forward curve prices in the $4 to $5 per MMBtu range if gas supply is again curtailed, with the onus in 2021 falling mostly on the LNG market. A cold northern hemisphere winter, curtailments in Russia pipe flows to Europe and/or a very large rise in Asia LNG demand could conspire to tighten the balance and support prices at the level of the forward curve. Alternatively, European storage could again absorb the surplus LNG but this would likely require TTF prices to be below $3 again in the summer of 2021, to balance the market, repeating the events of this year.