European natural gas prices are still well below the all-time high set in March, but dig a bit deeper and they are signaling a more protracted disruption than markets anticipated in the immediate aftermath of Russian President Vladimir Putin’s invasion of Ukraine.
While the gas market then priced in a short-lived crisis, lasting perhaps a couple of months, it is now flashing extreme danger for next winter, through next year and, increasingly, into 2024. At the beginning of this month, the whole European gas price curve repriced at a much higher level.
The shift in the forward curve was the most notable development of the gas market in the past month — one that is not gathering enough attention in European capitals.
However, the industry is keenly aware, as it is bearing the cost.
In March, a German manufacturer could lock in gas prices for all of next year at about 80 euros (US$80.70) per megawatt hour; now, it has to pay a record high 145 euros to hedge the same price risk.
In the first week of this month, the closely watched Dutch Title Transfer Facility (TTF) contract, a European spot benchmark, rose to about 175 euros, doubling in a month after Russia cut supplies via the Nord Stream 1 pipeline into Germany.
Even so, spot gas prices remain below the record settlement of 227 euros set during the early days of the war — worrying, but not alarming; prices are high, but not that high. After what the market weathered in March, it can be understood why policymakers are not panicking.
However, that is if you ignore the action on the back end of the curve. On March 5 — when spot gas prices surged to about 185 euros — the contract for delivery in December rose only to about 155 euros; in the first week of this month, when the spot price was slightly lower, the December contract traded at nearly 195 euros.
A year into Russia manipulating European gas supplies, the market is finally convinced that Moscow will continue to do so, and perhaps with greater intensity. The first test comes soon. The Nord Stream 1 pipeline, the most important gas link between Russia and the EU, is undergoing annual maintenance until Thursday. Berlin fears that Moscow could find an excuse to keep it closed for good, cutting gas supplies to Germany completely. After all that Moscow has done, the German government is right to be concerned.
Yet, Russia might want to keep some gas flowing to preserve its long-term leverage. From a game-theory point of view, that makes sense. Once Russia stops shipments completely, it can no longer apply pressure. Tactically, Moscow is likely to keep some gas moving, retaining the option of cutting or slowing flows whenever it chooses.
Moreover, Nord Stream 1 is the main route for Russian gas into Europe indexed against the TTF contract, Goldman Sachs has said.
Not reopening the pipeline after the maintenance shutdown would limit the profit that Gazprom, the Russian state-owned gas giant, enjoys from sky-high gas prices.
Russia has clearly written off its gas relationship with Europe, but for now, the Kremlin is likely to continue to enjoy the best of both worlds: high revenue and compelling leverage. To achieve its objectives, Russia needs to continue selling some gas to Germany, but at reduced rates, as it is doing at present.
The market is right to reprice the gas curve; the only question is why it took so long. There is further risk ahead: At some point, Moscow is likely to completely turn off the tap, probably just before the winter, to try to bring the German economy to its knees. That is an outcome the market has not priced yet.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities, and a former reporter for Bloomberg News and commodities editor at the Financial Times.
This column does not necessarily reflect the opinion of
the editorial board or Bloomberg LP and its owners.
Former president Ma Ying-jeou (馬英九) in recent days was the focus of the media due to his role in arranging a Chinese “student” group to visit Taiwan. While his team defends the visit as friendly, civilized and apolitical, the general impression is that it was a political stunt orchestrated as part of Chinese Communist Party (CCP) propaganda, as its members were mainly young communists or university graduates who speak of a future of a unified country. While Ma lived in Taiwan almost his entire life — except during his early childhood in Hong Kong and student years in the US —
Chinese Nationalist Party (KMT) lawmakers on Monday unilaterally passed a preliminary review of proposed amendments to the Public Officers Election and Recall Act (公職人員選罷法) in just one minute, while Democratic Progressive Party (DPP) legislators, government officials and the media were locked out. The hasty and discourteous move — the doors of the Internal Administration Committee chamber were locked and sealed with plastic wrap before the preliminary review meeting began — was a great setback for Taiwan’s democracy. Without any legislative discussion or public witnesses, KMT Legislator Hsu Hsin-ying (徐欣瑩), the committee’s convener, began the meeting at 9am and announced passage of the
Prior to marrying a Taiwanese and moving to Taiwan, a Chinese woman, surnamed Zhang (張), used her elder sister’s identity to deceive Chinese officials and obtain a resident identity card in China. After marrying a Taiwanese, surnamed Chen (陳) and applying to move to Taiwan, Zhang continued to impersonate her sister to obtain a Republic of China ID card. She used the false identity in Taiwan for 18 years. However, a judge ruled that her case does not constitute forgery and acquitted her. Does this mean that — as long as a sibling agrees — people can impersonate others to alter, forge
In response to a failure to understand the “good intentions” behind the use of the term “motherland,” a professor from China’s Fudan University recklessly claimed that Taiwan used to be a colony, so all it needs is a “good beating.” Such logic is risible. The Central Plains people in China were once colonized by the Mongolians, the Manchus and other foreign peoples — does that mean they also deserve a “good beating?” According to the professor, having been ruled by the Cheng Dynasty — named after its founder, Ming-loyalist Cheng Cheng-kung (鄭成功, also known as Koxinga) — as the Kingdom of Tungning,
RSS