Europe faces a repeat of the gas shock of 2021

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented on the reasons for the spot gas prices rise in Europe and their likely future dynamics.

"So far, the gas pumping exceeds the selection, but in the last few days it has decreased to a minimum level. And, judging by the weather forecasts for the coming weeks, some of the European UGS facilities may switch to preferential selection mode. At the same time, stocks remain at the level of 74%, as of October 12. Most likely, by November 1, when stable cold weather begins, it will be possible to accumulate another 1 — 1.5%, more is unlikely," Belogoryev believes.

Another factor driving up prices is the ongoing tension around the Strait of Hormuz and the still unresolved situation with the liquefied natural gas supply from Qatar, the analyst notes.

"In September, there were hopes that Qatar would increase supplies, but so far, contrary to all optimistic expectations, this is not happening. LNG tankers have switched to the practice of oil, with small-volume shuttle shipments and transshipment outside the Persian Gulf, but due to new Iranian strikes, it has not yet had an additional effect in terms of gas supplies. And the calculations for Qatar are not justified, which also affects prices," Belogoryev comments.

The expert called forecasting gas prices this winter "coffee fortune telling" because the main problem that caused the shortage and rise in price of this fuel is being solved by political agreements between the United States and Iran. If there is an appropriate decision, the Strait of Hormuz can be unblocked in a matter of days, and then, given that there are already ships loaded with Qatari LNG in the Persian Gulf, shipments will increase rapidly. In addition, Qatar is able to restore production volumes to almost previous levels, as most of the lines, except for the two damaged ones, will be able to return to work.

"And the market takes into account this opportunity to quickly increase supplies. Market participants in both oil and gas are currently unsure about the sustainability of long-term price growth. Therefore, they will play for a raise, but carefully. So far, I see the main corridor of spot prices in the range of 900 — 1200 dollars per thousand cubic meters. But even 1,200 is a lot, because the value of Qatari LNG for Europe is significantly less than the value of Russian pipeline gas in 2022," the expert says.