$2 Gas in Europe (Part III): Down, Down, Deeper and Down
Gas prices in Europe have crashed through the $2 range discussed in two previous OIES comments. The June TTF monthly price closed below $2 and, for the next few months, the forward curve suggests this will continue. The amount of gas in storage in Europe has played a crucial role in pricing movements, absorbing a lot of the excess LNG supply in 2019. With COVID-19 impacting globally on gas demand, and LNG export capacity still increasing, it looks increasingly likely that storage could be pretty much full, possibly in early August. The moment of truth will then have arrived in the global gas market. If there is still too much LNG trying to find a home, then there will need to be more supply shut in, from both LNG and pipeline gas, if prices are not to turn negative. Looking forward, the forward curve suggests a more than doubling of TTF prices in the summer of 2021 over 2020. The historic relationship, between storage utilisation and TTF prices, suggests that utilisation would need to be much lower next year than this. LNG flows into Europe would then need to be significantly curtailed, which can only occur if there is a big rebound in Asia LNG demand in the order of 20% year on year. In the absence of this, prices in Europe, and in Asia, may stay at stubbornly low levels through 2021, prompting more LNG shut-ins next year, and making it very difficult to return to the status quo ante COVID-19.