MOSCOW, August 23. /TASS/. The price of gas in Europe in winter may reach a record $5,000 per 1,000 cubic meters in case of a sharp cold snap and a reduction in stocks in storage, experts interviewed by TASS believe. They noted that a reasonable limit for spot prices in the market does not currently exist.
"In a dire situation - say, a cold snap at the end of winter when gas supplies are low - prices could theoretically rise above $5,000 per thousand cubic meters or even higher, since there is no real alternative fuel that could replace it at any given price. This situation will almost certainly be temporary, after which prices will fall from their highs in a day or two (look at the 2018 gas price hike in Europe as an example), but in the short term there is no limit to growth," says Ronald Smith, senior analyst at BCS Global Markets.
Alexey Grivach, deputy head of the National Energy Security Fund, expert of the Valdai Club, also notes the absence of a reasonable ceiling for spot prices at the present time, therefore, "if there is a physical shortage, then without regulators interfering in trading, the price can rise many times."
On Monday, the spot gas price in Europe rose above $3,000 per 1,000 cubic meters for the first time since the beginning of March, in anticipation of the suspension of supplies via Nord Stream for three days from August 31 due to the repair of the only gas compressor unit remaining in operation.
On March 7, 2022, the exchange price of gas reached almost $3,900 per 1,000 cubic meters for the first time ever.
Analysts from the Energy Development Center also do not exclude the start of a new round of price growth in October as the heating season begins in Europe. However, in early September, prices should fix at a level of about $2,000 per 1,000 cubic meters from the current extremely high rates.
"The current rise in prices in the short term seems to us mostly speculative. We expect a correction in the market in the next two weeks," the Energy Development Center said in a statement. Now the pricing takes into account in erroneous expectations that supplies via Nord Stream will not resume at all after the suspension - the loss of the European market due to the three-day downtime of the gas pipeline will amount to only about 100 million cubic meters, experts say. Germany pumps similar volumes into its underground storage facilities in just one day.
In addition, repairs at a field in Norway will be completed by the end of August, demand for electricity in Europe will begin to decline as heat waves fade, and high rates of gas storage filling will put additional pressure on prices, experts say. However, pre-winter Asian consumer activity on the spot LNG market, as well as the approaching peak of the intense hurricane season in the US and possible interruptions in LNG shipments, could still push prices up.
At the same time, the average monthly price level is more important for consumers and suppliers, says Aleksey Grivach.
"In the last heating season, it hovered around $1,100 per 1,000 cubic meters with a maximum in March at $1,500. In July, the average indicator exceeded the March record by 20%. In August, the average price will be over $2,000 with a tendency to further increase during the heating season. That means, it will be many times higher than last winter if Europe does not improve relations with the main supplier of energy resources," the expert concluded.
What will happen to demand for gas in Europe?
"From an economic point of view, high prices are a signal for market participants to produce more and consume less. At the moment, all non-Russian gas that can be produced and sent to Europe is already being shipped in this direction, and higher prices cannot ensure an increase in supplies. In the short term, therefore, consumption will have to be reduced in order to achieve a balance between supply and demand," says Ronald Smith.
Demand contraction is already happening as Europe's energy-intensive industrial activity declines and higher gas and electricity prices are now being passed on to residential consumers, which should also lead to reduced demand, the expert says.
The energy crisis in the EU worsened in early July, when the first interruptions occurred in gas supplies from Russia to a number of EU countries, related, in particular, to problems with the maintenance of turbines for Nord Stream due to sanctions. After that, the European Commission called on the EU countries to prepare in advance for the complete cessation of gas supplies by Russia and put into effect a plan to voluntarily reduce the consumption of gas by all states of the community by 15% for the period from August 1, 2022 to March 31, 2023.
Norway's largest producer of aluminum and aluminum products, Norsk Hydro, has already announced plans to close its aluminum smelter in Slovakia at the end of September due to rising electricity prices. Belgian Nystar has announced that it is closing its zinc plant in the Netherlands.