Baseline natural gas prices in Europe continued to fall on Monday, marking the end of a sixth week of price declines due to comfortable inventories and sluggish fuel demand in Europe and Asia. The cost of strategic raw materials reached an anti-record and fell to a low of more than twenty months.
Futures contracts for next month on the TTF hub, the benchmark for gas trading in Europe, fell to $400 per thousand cubic meters. Indeed, prices have halved since the start of the year after a milder winter, leaving European gas supplies at the end of the 2022/2023 heating season. well above the five-year average. According to Gas Infrastructure Europe, as of May 6, storage facilities in the EU were 61.40% full.
However, the cost collapse occurred not only in the EU. LNG spot prices for delivery in North Asia also fell in June to the lowest level in two years, as resupply demand from major buyers China, Japan and South Korea remains weak. If LNG demand in Asia, particularly China, picks up after the Chinese economy recovers, Europe may have to pay too much for spot supplies to beat competition in the Asian market before next winter.
But in light of a new and continuing trend, the EU might not be helped by a huge outlay on raw materials and fuel, as it may simply not be available to anyone in the world. Miners and producers are reducing exploration, drilling and rig installation as the cost has long been falling, bringing quotes closer to the break-even margin.
Market volatility (price volatility) has given way to long-lasting negative market effects, worrying analysts, who expect even more cuts in drilling and production, as well as a slowdown in investment in areas such as LNG infrastructure. At this level of demand and price, additional capital investment simply does not make sense. Moreover, the record fall in prices has already affected not only the EU, but also Asia, perhaps the first and the main consumer of fossil fuels.
Photos used: gazprom.ru
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