The decline in gas prices in Europe has its limits

During the previous one President Joe Biden's visit to Poland in March 2022, it seemed that Europe could face gas Armageddon. However, it was avoided, and currently falling gas prices are improving economic growth rates in our part of the world and helping stock markets around the world to grow. However, it seems that it may be difficult to achieve further price reductions.

Natgas – huge market volatility

The year of war in Ukraine brought huge fluctuations in the price of natural gas. The first months of the conflict caused a sharp jump in the price of this raw material, fueled by the fear of a harsh winter and shortages in supplies. In Poland, this resulted in stopping the production of artificial fertilizers and limiting production by some companies. After that, prices began to fall and from the summer of 2022 to now, they have already fallen by 85 percent. If we convert the price of gas into the energy that can be produced from it, it turns out that the costs of MWh from natural gas and oil is currently close and cost around 50 euros. However, it cannot be overlooked that the current price of natural gas at the Transfer Title Facility (TTF) is still three times higher than the 2020 level and is a serious factor hampering economic growth in Poland and many other countries.

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It is very likely that the price of natural gas has gone through the biggest price drops and will remain at a level similar to the current one for longer. The opening of the Chinese economy, which increases the demand for LNG gas and where some supplies from Europe may be redirected, may have the greatest impact on maintaining the current price level. The more so that China is eager to buy Qatari gas, not wanting to become too dependent on supplies from Russia. In addition, Russia may also reduce the remainder of its gas supplies to the EU.

The weather favors gas consumers

So far declines in TTF natural gas prices mainly due to lower demand. And this was divided in half into the lower demand of households and enterprises. Warm weather and high prices resulted in significant decreases in demand. And the EU entered the winter season with maximum storage capacity and an increase in LNG gas imports (throughout 2022) by 70%. Currently, warehouses are still 64 percent full. (in Poland it is over 75 percent), i.e. 10 pp. above average fill level. This will make it easier to fill the warehouses before the next winter and reach the level of 90%. scheduled for November 1.

TTF is the Dutch hub where natural gas is traded, and the price set there is the most important benchmark for gas prices in Europe. It was founded in 2003 originally for the local market, but now trades 14 times the amount of gas used in the Netherlands. Its role is similar to that of the Henry Hub located in Louisiana in the USA.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.