In early 2021, Covid-19 restrictions continued to supress prices. Q1-22* was around 50p/therm, which traded around this level until mid-March 2021 when a drop in LNG supply started to push prices higher. LNG deliveries dropped amid rising prices in Asia, a competing market, and Q1-22 was now around 55p/therm.
LNG and cooler-than-average temperatures supported prices further in April and Q1-22 was now around 65p/therm.
In May, surging carbon futures helped support prices further. Benchmark carbon prices had risen from roughly €32/tonne at the start of 2021 to €51/tonne by the end of May, a rise of almost 60% resulting in Q1-22 trading around 70p/therm.
Gazprom / Russia became the main focus from June. Gas markets across Europe rallied to new highs, primarily driven by the lack of bookings from Russia’s Gazprom for capacity via Ukraine for July. A series of planned outages, record low storage levels and a quiet LNG schedule added to the supply tightness. Q1-22 had now risen to around 90p/therm – a rise of almost 30% from the month prior.
Demand for gas in the Asian power sector remained a key driver, pulling LNG cargoes from the European terminals towards the Pacific basin in July. Storage levels within the UK and across Europe continued to be unseasonably low, which when combined with tight supply margins pushed prices to near all time highs with Q1-22 now trading around 102p/therm.
Further carbon gains and unplanned outages at key Norwegian infrastructure combined to boost gas prices further in August. Carbon benchmark was now at €60/tonne, while Q1-22 gas prices rose to around 117p/therm.
September really marked the start of the ongoing energy crisis, with several suppliers failing amid rising prices. Quickly approaching the start of the winter, storage levels were at record lows for that time of year. With Q1-22 gas prices around 223p/therm at this point, a rise of over 90% from the month prior, it really highlighted the level of volatility we started to see.
Gas prices continued to rise at the start of October, with no real changes to the underlying fundamentals. Weather was mostly cool, storage levels were extremely low going into the winter season and there were limited capacity bookings from Russia / Gazprom via Ukraine. There was some optimism that supply could soon improve, as gas filling had begun on the first string of the Nord Stream 2 pipeline. This was a key step towards building working inventories and pressure. Pre-commissioning also began on the second string, according to Nord Stream 2.
At this point, start up was still possible before the end of 2021 subject to certification and the Q1-22 contract reached an intra-month high of 301p/therm. Prices came under pressure towards the end of October amid positive signs for EU storage as Russian president Vladimir Putin directed producer Gazprom in a meeting on 27 October to prioritise refilling the company’s depleted storage assets in Germany and Austria, once domestic sites were filled on 8 November. Q1-22 gas prices ended the month at 190p/therm, down 110p/therm from intra-month high.
Prices remained relatively unchanged throughout the early parts of November before low capacity bookings for supply to Europe via Poland in December boosted NBP products. Russian exporter Gazprom booked no monthly capacity for westward flows in December along the Yamal-Europe pipe into the Polish-German point of Mallnow.
The possibility that no gas will flow to Europe via the new Nord Stream 2 pipeline increased, as Germany’s energy regulator suspended certification. This was due to the pipeline requiring further regulatory compliance action by the link’s holding company before BNetzA could resume the certification process. LNG deliveries to Europe remained low despite the high gas price as prices in Asia also tracked European hubs. Q1-22 ended the month around 233p/therm.
Cold weather in December and a series of unplanned outages drove natural gas prices higher. With no signs of completion of the Nord Stream 2 pipeline, limited capacity bookings by Russia and record low European storage levels – gas prices surged to record highs. Support came after an announcement by German energy regulator BNetzA who said a final decision on the certification of the Nord Stream 2 pipeline cannot be expected in the first half of 2022. Q1-22 was trading around 440p/therm on 21December.
Prices underwent a major correction over the festive period, driven partially by expectations of record high temperatures and a busier LNG schedule. Q1-22 ended the year around 207p/therm ahead of expiry.
High levels of volatility remain and the tight supplies meant that gas prices surged in the first trading session of 2022, with gains of 50p/therm witnessed on some parts of the curve.
Russia continued to book little to no piped capacity via the Yamal pipeline at the Mallnow entry point. By 7 January, gas prices reversed some of the earlier gains amid rising temperatures and a busy LNG schedule.
Any signs of certification of the new pipeline could spark the beginning of the end of the current energy crisis. It is worth noting however that Gazprom could flow more gas to Europe now because it is not a capacity restraint currently limiting gas deliveries from Russia.
The political landscape will ultimately be the deciding factor. Certification alone may not mean a resolution of the current crisis.
Storage levels remain extremely low (around 15% lower than same time last year). Prolonged and unseasonably cold weather could deepen the existing energy crisis.
The weather has been more settled than expected for the time of year, which has in turn capped wind powered generation. Low winds are likely to increase gas demand for power generation.
Hopefully the busier LNG schedule continues. Spot prices in Asia look to have subsided; however, a return to bullishness could once again see cargos diverted.
Crown Gas & Power has been a licensed gas supplier since 2001. Energy markets have always been volatile with prices responding to market forces. The UK becoming more reliant on imported gas either through piped imports or LNG shipments, together with the move to renewable (weather dependent) generation, has only exasperated the volatility within the energy sector.
Crown Gas & Power has always had resilient buying strategies that have enabled the business to overcome all challenging market events over the years. We have always operated a well hedged portfolio that has shielded Crown Gas & Power from the majority of market exposure. In practice this means that we buy our energy at the point of sale to satisfy our customer demand and thus our purchase price remains anchored to our customer price. We are not unduly exposed to the current high wholesale energy prices for the reasons explained above and we have no concerns on our continued ability to operate.
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*‘Q1-22’ is the gas for delivery in quarter one of 2022. From 1 January of 2021 until the end of the year it doesn’t expire, so you are able to see the changes throughout a 12 month period.