Natural Gas Price Declines Forecast to Extend at Julius Baer
- Written by: Gary Howes
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Image © Adobe Images
Natural gas prices in Europe and the UK have fallen sharply this week and more losses are likely say economists at Swiss private bank Julius Baer.
"With the summer heat leaving and autumn rains partially arriving, Europe’s energy prices cooled from their peaks. We believe that markets excessively price energy supply risks and that the current surge should eventually ebb," says Norbert Rücker, Head of Economics & Next Generation Research at Julius Baer.
Day-ahead UK wholesale gas price tumbled by more than 20% to 447p per therm on Tuesday, while the month-ahead contract dropped by a quarter, to 473p per therm. The Euro rose in response.
Falls in UK gas prices came as European contracts tumbled on news the region's attempt to rapidly fill gas storage facilities was proving successful.
Dutch TTF gas futures, the European benchmark, fell to €250 per MWh on Tuesday from a peak of €339 per MWh on Sunday.
Above image courtesy of @ChrisGiles_
Prices are largely unchanged Wednesday, as flows through Nordstream 1 from Russia to Germany are halted for three days, as planned.
German Economy Minister Robert Habeck said Monday he expected gas prices to fall soon as Germany is making progress on its storage targets and won't have to pay the high asking prices currently commanding the market.
German storage facilities are nearly 83% full and will hit 85% full in early September, according to Habeck. Germany has set a goal for gas storage levels to be 85% filled by Oct. 1 and 95% filled by November 1.
Part of the recent spike in gas prices has been the frantic bidding for gas to fill storage facilities, aided by government subsidies. When this bidding ends, gas prices can come down and heat in the market will ultimately cool.
"We have confidence that we are looking at a pattern of ferocious but ultimately short-lived price spikes," says Rücker.
He says excessive fears, wild volatility, and thin trading liquidity have contributed to the spike in prices.
"From a big picture perspective, it is primarily a combination of geopolitics, weather events and the post-pandemic, stimulus-induced economic overheating which explains Europe’s energy crisis," he adds.
Looking ahead, Julius Baer note various market developments that can ease tight gas markets, these include:
- A surge in global coal availability
- Expansion of global liquefied natural gas (LNG) export capacity
- Acceleration of clean energy investments
- Japan’s pledged pivot back towards nuclear, given its relevance as an LNG importer.
"There are various elements that increase the odds that energy markets will return to pre-pandemic normality over the coming two years," says Rücker.
The downswing in prices could be as abrupt as the upswing, he adds.
Indeed, Julius Baer forecasts U.S. natural gas to decline|: the price was at 9.1 USD/mBtu at time of research, Julius Baer are targeting 4.25 on a 3-month view and 3.5 on a 12-month view.
They are cautious on European natural gas, the price is presently at 269 EUR/MWh, with targets set at 100 in three months and 75 in 12 months.
"We still believe that markets excessively price energy supply risks and that prices should reverse eventually. However, it does not need much – a winter cold spell, another twist in geopolitics, a pipeline rupture – to prolong the series of price spikes under current market conditions," says Rücker.
