Wholesale gas prices are going through the roof as a result of increased demand from economies getting back on their feet after the pandemic.
The benchmark Dutch TTF gas future contract (for November) was up 25% on Tuesday at US$120.63 per megawatt-hour, up more than 250% during 2021. UK gas for November delivery is currently trading at US$286 a therm, compared to around US$100 towards the end of July.
As a result of increased demand, stockpiles in Europe are running low, particularly in the UK, and producers are struggling to replenish supplies; some power plants have switched from using natural gas to oil to produce energy as a result of supply constraints.
Natural gas is trading above US$215 per barrel of oil equivalent; oil – the real stuff (specifically Brent crude for December delivery) is trading at US$82.91 a barrel.
“Surging gas and power prices have also been felt outside Europe with hot weather-related demand not being met by a similar response from producers. Add to this the worst quarter for wind power generation in years, and the pressure on traditional fuels such as gas and even coal has been elevated,” said Ole Hansen, the head of commodity strategy at Saxo Bank.
“As a result, we are heading into the northern hemisphere winter with stock levels, both in the US and especially in Europe, well below the average seen in recent years. If not arrested by a milder than normal winter or increased flows, either from LNG [liquefied natural gas] or from Russia through the soon-to-open Nord Stream 2 pipeline, a bleak–and expensive–winter could await Europe’s consumers and energy-heavy industries,” Hansen warned.