European natural gas declined Thursday as traders took stock of an extreme price swing in the previous session, fueled by the possibility of strikes in Australia that could disrupt supplies.
(Bloomberg) — European natural gas declined Thursday as traders took stock of an extreme price swing in the previous session, fueled by the possibility of strikes in Australia that could disrupt supplies.
Benchmark futures settled 7% lower, erasing an earlier gain. The contract surged 28% on Wednesday, the most since March 2022.
The abrupt change is the latest example of intense volatility that has stalked Europe’s gas market for months. Traders continue to be on edge even though the continent’s fuel inventories are about 88% full on average — well above normal for the time of year — and industrial demand remains tepid after last year’s energy crisis.
Workers at some Chevron Corp. and Woodside Energy Group Ltd. facilities in Australia are considering industrial action, which could have implications for liquefied natural gas supplies. Talks are ongoing and further negotiations are scheduled for Aug. 15. Any prolonged strikes, which could begin as soon as next week, risk tightening the market for the fuel as buyers in Asia would have to seek alternative supplies.
On Thursday, Asian spot LNG price tracked earlier European price moves, rising 10% after a public holiday in Singapore on Wednesday, according to S&P Global Commodity Insights.
Any interruption at the Australian facilities risks disrupting about 10% of global LNG exports. If the dispute were to last one month, about 3 million tons of LNG capacity could be affected, removing about 44 cargoes of LNG from the market, according to Claudio Steuer, director or SyEnergy Consulting.
However, the strikes — if they materialize — may only have a limited impact on physical shipments to Europe, he said. While some US supplies could shift to Asia, Europe also sources LNG via long-term contracts from Norway, Algeria, Qatar and Nigeria.
“Markets rise on speculation and fall on facts,” Steuer said. “Once the market realized the disruption may be much smaller and the market is adequately supplied at the moment,” European prices corrected.
It’s also possible trader positioning contributed to the recent price surge.
“The strength and extent of the move may have been driven by an unwinding of short positions, and the market has fallen back to some extent today as the dust settles,” said Callum Macpherson, head of commodities at Investec. There was a similar move that drove prices higher in recent months, he added.
Gas Inventories
Still, traders are keeping a close eye on gas stockpiles and maintenance schedules. Total LNG inventories in Japan may have fallen below last year’s level due to more robust power demand, according to Rystad Energy. In China, LNG tank stockpiles at import terminals could hit 90% in the coming month, which could force importers to push back seaborne shipment deliveries.
Europe’s LNG imports have already slipped from the highs seen earlier this year, while stockpiles continue to build. There’s also considerable focus on any potential changes to maintenance schedules in Norway, the region’s top producer.
Dutch front-month futures, Europe’s gas benchmark, closed at €37.06 a megawatt-hour. The UK equivalent dropped 6.8%, also erasing an earlier gain.
–With assistance from Elena Mazneva.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.