European natural gas price volatility is here to stay

LONDON: Volatility in European natural gas markets is here to stay, with prices sensitive to the Asian liquefied natural gas (LNG) market, renewable energy fluctuations and energy policy, executives told the annual European Gas Conference on Wednesday.

After a couple of years of relatively flat gas prices and stable demand, prices dropped last year in the face of lower energy demand because of coronavirus-related restrictions.

This month, however, Asian liquefied natural gas (LNG) prices soared to record highs because of low stocks, a cold winter, global production outages and shipping delays.

The month-ahead Dutch benchmark gas price climbed to its highest since the fourth quarter of 2018.

"It has been quite a volatile year in European gas (so far) and volatility is here to stay," said Franco Magnani of Italian oil and gas group Eni.

Because Europe imports LNG, the European gas market is sensitive to what happens in markets in Asia as well as fluctuations in renewable energy production, he said.

European gas stocks have also fallen since reaching unusually high levels at the start of winter. European gas storage sites are currently about 58% full, compared with around 80% at the start of the winter gas season last October, data from Gas Infrastructure Europe showed.

"We have seen a lot of gas withdrawn from storage and it is possible this will lead to more volatility this spring," said Maria Rita Galli, executive vice president of business development and international asset management at Italian gas group Snam.

"Looking ahead to the next 12 months, volatility is here to stay. There might be less range (in prices) compared to the last 12 months, but I still expect significant swings."

European energy policy, such as Europe's Green Deal to recover from the economic effects of COVID-19 and curb global warming, and the role of gas as a transition fuel could stoke more volatility.

"There are mixed signals on this front from the policy debate and this could fuel some volatility in the short and medium term," said former Romanian energy minister Victor Grigorescu.