A higher natural gas price in Europe in November is making it lucrative to hold back supplies for a month until the arrival of lower temperatures can boost profits.
(Bloomberg) — A higher natural gas price in Europe in November is making it lucrative to hold back supplies for a month until the arrival of lower temperatures can boost profits.
Futures for November are about €10 euros a megawatt-hour more expensive than gas delivered next month, with no other contract this winter showing so large a difference to the previous month. That presents an opportunity for traders to keep liquefied natural gas on tankers and unload when colder weather lifts demand and prices.
Gas for October — Europe’s benchmark — fluctuated on Tuesday as Chevron Corp. continues talks with LNG workers in Australia in a bid to avert strikes. The fuel is cheaper next month than later, with Europe’s storage sites already full and demand muted. Early forecasts point to mild temperatures until mid-October, which could delay the start of the heating season. Come November, any supply risks could get more acute.
“The steep contango on European gas, particularly the very large premium of November over October, is likely to tempt market participants to float LNG storage as we go into winter,” said Tom Marzec-Manser, head of gas analytics at ICIS, in an email. “Moving the arrival of a cargo back a few weeks could result in some noticeable additional returns.”
While Europe made it out of last year’s energy crisis on stronger footing than many initially expected, winter continues to pose risks for the region, and will do so until more LNG supplies become available worldwide. Outages or sabotage at Norwegian gas facilities could lead to near-term shortages, as could any further escalation of Russia’s war in Ukraine.
Citigroup Inc raised its price forecasts for the third and fourth quarters due to risks such as hurricanes, labor strikes, gas storage in Ukraine and rising costs for storing LNG on tankers.
Dutch front-month futures closed 2.6% higher at €34.45 a megawatt-hour at 6:37 p.m. in Amsterdam, after fluctuating earlier in the day. The contract for November added 2.24% to close at €45.15 a megawatt-hour.
Meanwhile, French prices for Q1 2024 continue to erode their premium by allaying fears over the reliability of their nuclear fleet, dropping as low as €153.50 a megawatt-hour. That makes them only €19.10 a megawatt-hour above its German equivalent (from nearly €66 a megawatt-hour early-August).
–With assistance from Priscila Azevedo Rocha and Ellie Harmsworth.
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