European gas traders eye price below zero in summer oversupply

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(Bloomberg) — Short-term natural gas prices in some parts of Europe could dip below zero briefly this summer if weak demand can’t keep up with growing gluts.

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Traders at the annual energy trade fair E-World in Essen, Germany, say producers have effectively turned to someone else to take over the gas as prices have fallen to pre-crisis levels. Such events that pay are becoming more and more feasible, he said.

This is the first time since October 2006, when UK intraday interest rates briefly dipped below zero after a new supply pipeline opened in mild weather. Similar forces are at work today, with rapidly depleted inventories, soaring consumption, and plunging prices due to increased wind and solar power. Markets in countries with limited inventories like the UK are more likely to have zero.

“Hours and days of renewable production could lead to negative regional gas markets in Europe,” Peder Bjorland, vice president of gas trading and optimization at oil giant Equinor ASA, said in an interview. has potential,” he said. “There’s quite a distance from the price levels we’re seeing right now to negative single-digit prices, and a lot can happen down that route.”

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Europe’s gas stocks are about 66% above seasonal standards, and some expect storage to fill up as early as August, long before the heating season begins. At the same time, falling prices have not yet revived industrial demand, causing some buyers to postpone gas purchases until market interest rates fall further.

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“If everything continues like this, we’ll be full by September or October quite early in the summer,” said György Varga, CEO of Swiss trading house MET International. It depends on whether early winter starts.” . “In the very short term, prices could be in the single digits due to physical bottlenecks, for a few days if storage is full.”

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European benchmark Dutch petrol prices fell to nearly 26 euros (about $28) per megawatt hour on Thursday. It is down about 66% this year, trading at a fraction of its August high of €342.

In the short-term market, where negative prices are most likely to occur, Dutch day-ahead contracts changed trades at around €28 per MWh. The equivalent price in the UK also fell.

While rare in the gas market, negative prices are frequent in power trading, and strong wind power on weekends when demand is low could easily push rates below zero. It is far more volatile than other commodities as no industrial scale storage solution exists yet.

Still, many factors need to come together for petrol prices to become negative in the short term, and there are ways to avoid a big crash. For example, more storage can be found via floating liquefied natural gas cargo. Alternatively, as a last resort, traders may tap into Ukraine’s vast storage capacity.

From LNG plant outages to the risk of a complete blockage of Russian pipeline flow, prices could still soar. And demand from industry may continue to recover.

“If none of the bullish factors materialize and there are no Ukrainian storage facilities or large-scale floating generation, prices could fall below €10/MWh for a few days,” said Varga of the Met. .

— with the help of Rachel Morrison.

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