Surging 2021 European Gas Prices – Why and How?
This Comment discusses the surge in gas prices in Europe in 2021, breaking down the various drivers in three phases. In Q1 the cold northern hemisphere winter weather and supply constraints from European production tightened the market, but the impact on TTF prices was muted since European storage was in good shape and could relatively easily accommodate the increased withdrawals. In the summer, strong Asian, as well as Central and South American demand for LNG combined with continued supply constraints for LNG and European production meant that Europe was unable to restock at anywhere near a normal rate. Upward pressure began to build on TTF prices. The real shock to the market, however, came in Q4 when gas flows from Russia along the Yamal Europe route dropped sharply to less than a third of normal levels. The lower Yamal Europe flows tipped the market over the edge and rather than TTF prices being in the $15 to $20 per MMBtu range – still very high by historical standards – they rose to $30 or above and averaged almost $27/MMBtu for the whole of Q4.