Gas Prices Surge on Both Sides of Atlantic Amid Supply Concerns
Natural gas prices are surging on both sides of the Atlantic due to different fundamental dynamics. In Europe, concerns about supply ahead of the upcoming heating season are driving up prices. The European market is under pressure as gas storage facilities in the EU have only been filled to around 63-64%, which is significantly lower than the 5-year average of 81%. Analysts estimate that storage can be filled to at most 70% before winter, risking a drain to levels below 20% by the end of the season. Prices in Europe could reach as high as $90-120/MMBtu this winter.
In contrast, the US market is driven by a heatwave, which has boosted demand for gas to power air conditioning. However, production of associated gas in the Permian Basin and expansion of transmission infrastructure are maintaining high inventory levels, making it difficult for prices to sustainably move above $3.00/MMBtu.
The futures curves show a clear difference between current tension and long-term expectations. In Europe, investors are paying a high premium for security 'here and now,' but assume a gradual stabilization of the market in the future. Meanwhile, in the US, prices have risen due to increased demand, but are falling for winter.
The situation is further complicated by the tense situation in the Middle East and unfavorable weather conditions, such as Saharan dust limiting production from photovoltaics in Germany and southern Europe.