Dec 8, 2021
Volatility in wholesale gas markets predicted for the winter
Volatility in wholesale gas markets predicted for the winter: With wholesale gas prices reaching all-time highs in recent months, Cornwall Insight has examined the outlook for gas prices this winter with the analysis showing that sustained volatility is expected.
Key findings
— GB gas prices have continuously reached record highs in the second half of 2021
— Average gas prices in October range between three to five times higher than 2019 and 2020 depending on the contract
— Gas storage levels in the EU sit below their 10-year average
Lee Drummee, Analyst at Cornwall Insight, said:
“With several fundamental drivers impacting the gas market, prices are expected to remain elevated but susceptible to volatility during winter as the result of a number of bullish and bearish factors. Higher supplies from Norway, with Equinor increasing supply by 2bcm during the 2021–22 gas year, and assets on the UK Continental Shelf should provide some downside to prices.
“In addition, increased flows from Russia into Europe will drive prices lower. European gas prices had already shown reactions to Russian gas flows as prices dropped considerably toward the end of October when gas flowed into Germany but shot back up when flows reversed the next day. Significant price depression will likely only occur once the flows from Russia are consistent and prolonged.
“On the flip side, the historical low levels of gas in European storage sites will continue to provide upward momentum to prices. In addition, the current high-level of LNG prices could lead to a less diverse gas mix by pricing cargoes away from GB and North-West Europe, resulting in higher withdrawals from storage sites and additional pressure on other gas supply routes.
“The reduction in gas storage levels has added to concerns of a lack of supply in the event of an extended cold snap or other high gas demand scenarios. This has the potential to elevate prices further.”
Volatility in wholesale gas markets predicted for the winter
