Struggling European industries face another gas price shock in coming winter months as cold weather depletes stocks, competition with Asia for liquefied natural gas intensifies and that the prospect of a reduction in Russian supplies looms.
Since the energy crisis of 2022, when gas prices peaked at almost 350 euros per megawatt hour (MWh), dozens of companies across Europe have closed factories, reduced operations and cut jobs, as High gas prices have undermined their competitiveness.
Many are maintaining reduced demand and sluggish manufacturing activity, negatively impacting Europe’s weak growth.
European Union gas demand is 17% below the five-year average seen in the years before the pandemic.
At the same time, gas prices have reached their highest level in more than a year and analysts predict they will rise further.
“The problem is that we are letting our guard down because energy prices are lower today than in 2022,” Svein Tore Holsether, CEO of Yara, a listed fertilizer company, told Reuters in October. Oslo.
“It is important to remember that we are still at much higher levels than other key regions like the United States, the Middle East and Russia.
Nervousness over the expiration at the end of the year of a Russian transit deal to supply gas to Europe via Ukraine helped spur buying.
Francisco Blanch, head of commodities and derivatives research at Bank of America, said this could push European gas prices up to 70 euros/MWh next year, from almost 50 euros /MWh currently.
For comparison, average gas prices in the EU were 17.58 euros/MWh in the five years before the pandemic, according to LSEG data.
EU gas stocks are 85% full, 10 percentage points less than a year ago, according to data from Gas Infrastructure Europe.
According to Barbara Lambrecht, an analyst at Commerzbank, this situation makes the current winter uncomfortable, as cold spells would cause storage levels to fall more quickly than in the last two relatively mild winters.
To try to preserve supplies, the European Commission increased its inventory filling target last week, which risks increasing upward pressure on prices.
INDUSTRIES LOSSING SPEED
Dozens of factories have closed in Europe and nearly a million manufacturing jobs have been lost over the past four years, according to Bernstein data.
In a report on Europe’s competitiveness published in September, former ECB head Mario Draghi said the loss of relatively cheap Russian gas following the outbreak of war in Ukraine in 2022 had come at a “huge cost” to the economy and that fossil fuels would be needed at least for the rest of the decade.
“Even though energy prices have fallen significantly from their peaks, EU companies still face electricity prices that are 2 to 3 times higher than those in the United States. paid for natural gas are 4 to 5 times higher,” the report says.
Current prices in the EU are almost five times higher than those of American gas, which trades at $3.095/mmBtu, the equivalent of 10.02 euros/MWh.
An August survey by the German Chambers of Commerce (DIHK) found that high energy prices and unreliable energy supplies were hampering industrial production and prompting some German companies to consider outsourcing. stranger.
Yara’s CEO also told Reuters the company was “moving its energy exposure out of Europe.”
German industry lobby group the BDI has cited high energy prices among factors threatening the competitiveness of Europe’s largest economy.
“The risk of deindustrialization due to silent migration and the abandonment of many small and medium-sized businesses in particular is constantly increasing,” Siegfried Russwurm, chairman of the BDI and member of the board of directors of the industrial conglomerate, said in September German Thyssenkrupp.
In France, industries expect to operate at 70-80% capacity this winter due to high energy prices, particularly in the chemicals sector, Nicolas de Warren, president of the lobby group, told Reuters French industrialist Uniden.
“With the industry still at an all-time low, there is no reason to believe that gas demand from this sector will make a comeback this year,” Rabobank analysts said, adding that some increase in demand was possible in the heating sector.
Current EU storage levels are around 10 billion cubic meters (bcm) lower than last year in absolute terms and the difference will be mainly covered by liquefied natural gas (LNG) imports, a said Helge Haugane, head of gas and electricity trading at Equinor, the EU’s largest gas supplier.
This will come at a price, as competition intensifies for available supplies.
Although the European Union has avoided imposing sanctions on Russian gas, on which some of its members rely heavily, it has limited deliveries of Russian LNG.
In April, the European Parliament passed rules allowing European governments to ban imports of Russian LNG by preventing Russian companies from reserving gas infrastructure capacity.
The move could increase withdrawals from storage facilities and push the EU to compete more with Asia for LNG from the United States and the Middle East.
In November, Europe imported 11.3 billion m3 of LNG, or around 170 cargoes, mainly from the United States and the Middle East, according to LSEG data.
