European Gas Moves from Bad to Ugly

European Gas Moves from Bad to Ugly
European gas has moved decisively into BofA Global Research's 'ugly' scenario.

European gas has moved decisively into BofA Global Research’s “ugly” scenario following the NS1 and NS2 pipeline explosions, a new report from the company has outlined.

“After the war broke out in March, we set out three scenarios for European TTF natural gas prices that we labelled ‘good’ (€75/MWh), ‘bad’ (€100/MWh) and ‘ugly’ (€200/MWh),” the report noted.

“During the first half of 2022, the European TTF natural gas market traded mostly along the ‘bad’ scenario as pipeline flows from the east continued, despite some friction loss,” the report added.

“But as Russian pipeline natural gas flows into North West Europe collapsed this summer after Nord Stream 1 maintenance, day ahead TTF prices quickly moved into the ugly scenario, averaging exactly €200/MWh in the past three months, a level that we now expect to hold over the next 4 to 6 months under normal weather,” the report continued.

The BofA Global Research report noted that, in the short term, government mandated inventory fills have partly shielded Europe from the worst outcomes heading into the 2022/23 winter season but added that the situation “remains very precarious”.

“A one standard deviation colder-than-normal winter would leave stocks near empty, on our estimates,” the report stated.

“A synchronous cold winter in Europe and Asia would trigger a race for gas molecules. Given the drop in nuclear and hydro power generation and the collapse in European natgas demand elasticity, Europe will keep relying on fuel switching abroad and demand rationing at home to balance TTF,” the report added.

“Yet as the Ukraine conflict becomes more entrenched, refilling gas stocks in 2023 will prove hard,” the report continued.

In a separate report sent to Rigzone on September 30, BofA Global Research noted that damage to both Nord Stream pipelines might imply a permanent, not just temporary, loss of gas supply, “thereby locking in our 'ugly' price scenario of c.EUR200/MWh for multiple winters”.

“This is a picture that we see persisting for several years until tangible new LNG supply comes to the market from 2025/26,” that BofA Global Research report stated.

In a statement posted on its website on September 29, Nord Stream AG said it intends to start assessing the damage to the Nord Stream pipeline as soon as it receives necessary official permits.

“Access to the area of incidents may be allowed only after the pressure in the gas pipeline has stabilized and the gas leakage has stopped,” the company stated.

“Until the completion of the damage assessment, it is not possible to predict the timeframe for restoration of the gas transmission infrastructure,” Nord Stream AG added.

To contact the author, email andreas.exarheas@rigzone.com



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