European natural gas resumed its rally as the market tightens amid supply outages and prolonged hot weather.
(Bloomberg) — European natural gas resumed its rally as the market tightens amid supply outages and prolonged hot weather.
Benchmark prices rebounded from an early slide and rose as much as 12% to the highest since late April. That followed a 16% jump in the previous session, prompted by Norwegian production facilities prolonging their maintenance works until mid-July.
Other short-term supply issues have brought back volatility, helping boost prices by about 50% this month. Such events, coupled with expectations of competition for fuel with Asia, are keeping the market on edge even as inventories remain far fuller than normal and industrial demand for gas remains muted.
“One gas issue doesn’t get resolved without another flowing into view, and TTF is trying to rise a few euros more to the next higher target,” said Tim Partridge, director of energy markets at utilities consultancy Eyebright Ltd., referring to the benchmark Dutch futures contract.
Gains in carbon and crude oil prices also provided support to gas contracts, he said.
Outages in Norway, a key supplier of gas to Europe, have dominated the market this month. The Hammerfest LNG plant is on track to restart today as planned, said a spokesman for operator Equinor ASA. But several facilities, including the massive Nyhamna gas processing plant, have extended planned works, and another, Kollsnes, will start maintenance next week.
In addition, above-normal temperatures are expected to linger in northwest Europe through July, which may raise cooling needs.
Still, Goldman Sachs Group Inc. expects weaker demand to neutralize the impact from extended Norwegian supply outages.
Those stoppages tightened gas balances by about 1.4 billion cubic meters, Goldman analysts said. But weaker-than-expected demand and strong availability of liquefied natural gas have loosened it by 3 billion cubic meters in May and so far in June combined.
While Norway’s maintenance “helps moderate softening risks for the balance of summer, it doesn’t fully offset them,” the bank’s analysts, Samantha Dart and Jeffrey Currie, said in a note late Tuesday.
LNG supplies to Europe have slumped from the highs seen earlier this year but remain well above seasonal norms. The region is set to deepen its dependence on the super-chilled fuel as it makes up for virtually lost Russian pipeline gas flows. The price increase this month has made it profitable again for US LNG to go to Europe in the next three months instead of Asia, according to BloombergNEF.
The biggest question is whether demand in Europe picks up later in the summer when storage sites reach capacity limits, risking a temporary glut in the region.
“Now it’s a guessing game as to whether Europe needs to turn down LNG imports over the summer,” consultants Inspired Energy said in a note.
Dutch front-month gas, the benchmark for Europe, gained as much as 12% to €40.29 a megawatt-hour and traded at €38.10 by 5:20 p.m. in Amsterdam. The UK equivalent contract added 3.6%.
–With assistance from Yongchang Chin.
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