Extremely modest demand for gas from consumers in the private sector, electricity and heavy industry has led to a free fall in European natural gas prices over the past few weeks. Traders and market participants predict that for the first time in the history of Europe, the cost of raw materials under short-term contracts will become negative (fall below conditional zero) this summer. This has not happened in the EU for more than 17 years, that is, since the start of collecting statistical information, or, to put it simply, never. OilPrice writes about this.
As you know, a negative price can occur when the demand for a product drops to such an extent that suppliers themselves are willing to pay consumers to pick it up. As a rule, this is due to the impossibility of organizing long-term storage of goods or the high costs of such storage. Obviously, in the case of gas, or rather LNG, all conditions converge - the high cost of delivery, storage in liquefied form, as well as long-term charter of gas carriers.
The reduction in demand due to the spring-summer season and the decline in industrial potential so that it can be partly fueled by rapidly growing green energy will definitely lead to the fact that supply will critically exceed demand in the very near future. According to experts, such a phenomenon is extremely rare for Europe, unlike the United States, where once every one or two years something similar happens and “reboots” the market.
At the same time, as predicted, the reference spot price will not be able to reach below zero, but short-term futures for the day ahead are likely to reach these values.
Selected regional gas markets in Europe could turn negative as buyers have a choice due to warm weather and full storage, as well as burgeoning alternative energy
said Peder Bjorland, vice president of gas trading and optimization at Norwegian energy giant Equinor, in an interview with Bloomberg.
Without exception, all market participants can only hope that the cold winter will bring the entire industry, logistics and trading floors to life, awaken the appetite for consumption and balance supply with demand, pushing the factor economic activities in the background.