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The gas market will be very volatile in 2022

2021-12-08 H:30:19

After 18 months of swings record lows to record highs, global natural gas prices are bracing for another year of volatility.

Gas demand began to rebound this summer as inventories in Asia Europe dried up after a long, cold winter, prices surged to record highs in the fall. This has forced Europe's gas-intensive industries, such as steelmaking, fertiliser ammonia production, to cut operations to reduce record input costs.

U.S. gas prices at the Henley hub have plunged in recent days, falling below $4 per million British thermal units early Monday, amid predictions of warmer winter weather, depending on winter conditions in those regions Gazprom's supplies to The European region.

Europe is heading into winter with gas stocks at their lowest level in almost a decade, while some cold weather in recent weeks has boosted demand for heating power generation, leading to higher prices in wholesale gas centres in Europe the UK.

Europe's gas reservoirs are now 70 per cent full, compared with an average of 85 per cent over the past decade.

Meanwhile, additional gas flows Russia have yet to materialise Nord Stream 2 is at least several months away commercial operation, unlikely to help Europe's gas storage levels this winter.

In Asia, a strong rebound in demand pushed spot LNG prices to record highs a few weeks ago. Spot prices for liquefied natural gas delivered last week fell $1.50 to $34.6 per million British thermal units, trade sources told Reuters. Despite the drop, the price is still the highest since January 2021.

"We have a lot of energy in Asia the Pacific," said Gavin McCormick, vice chairman of Asia Pacific energy at Wood Mackenzie. Asia's LNG demand has risen by a staggering 21m tonnes this year -- a strong rebound last year's epideme-driven impact, Gavin Thompson wrote last week.

LNG suppliers are confident that Asian gas demand will continue to rise in the coming years decades will underpin the development of more projects this decade. The new LNG project to be approved is Woodside's $12 billion Scarborough Pluto 2 projects, which were approved in late November.

Colder than usual weather in Asia could push up spot LNG prices this winter, although high import costs could deter some price-sensitive buyers.

In Europe, gas prices will continue to fluctuate, depending on weather conditions the flow of Russian gas through pipelines to Europe. Traders are closely watching every tender for gazprom's pipeline capacity to run through the main pipeline to Germany Poland. Every time Russia does book much extra capacity, benchmark gas prices in Europe rise.

The market is also closely watching the daily flow of gas the Yamal-Europe pipeline. In November 2020, for example, Russian gas supplies to Europe were unstable, as gas flows the Yamal-Europe pipeline Belarus to Poland Germany were low non-existent on some days, gas was sometimes sent east Poland.

Over the past month, uncertainty over how much additional volume Gazprom will add to its contractual obligations has kept benchmark Gas prices in Europe volatile.

The controversial Nord Stream 2 pipeline project is out of danger, as its certification has now been suspended by the Bundesnetzagentur, Germany's federal network agency, until the pipeline's Operator in Germany is registered under German law.

Europe's power gas systems markets have faced their toughest test so far this winter because of tight gas supplies uncertainty over whether when Russian gas flows will increase significantly.

Gas prices in Europe Asia could be volatile again next year, possibly setting new records, if a cold winter of 2021-2022 depletes Europe's gas reserves.

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Source: Sinopec News

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