Natural gas market facts of the day

The energy markets are completely spooked by the unfolding sequence of events with the Ukraine invasion. Natural gas, already reeling from the supply constraints over the winter, prices have gone over the roof.

European wholesale natural gas prices also rallied sharply, with futures jumping to a new record high of €239 per megawatt hour, from about €193 on Friday. A year ago, the price was around €16.

That was last week. On Monday, gas prices rose further, with futures on the Dutch TTF Exchange hitting dramatic highs,

The price of natural gas in Europe hit an all-time high on March 7, briefly touching €345 per megawatt-hour. That’s equivalent, in terms of British thermal units of energy, to oil prices of $600 per barrel. Late in the day, the price had settled back to about €190, still a record. Before the last 12 months—when the European gas market was rocked first by a compounding series of market trends and mishaps, and now by Russia’s invasion of Ukraine—the price had stayed roughly in the range of €15-25 per MWh for a decade.

And this

Before Friday, prices had never topped 200 euros, according to FactSet data stretching back to 2013. Before last year, they had never surpassed 30 euros.

A thought to be kept in mind while we observe these trends. 

While immediate triggers like pandemic, Nordstream 2 bargaining, and Ukraine invasion explain the sharp volatility in natural gas prices, I would argue that there are systemic trends responsible for this situation. An excessively optimistic energy transition regime has squeezed investors out of fossil fuels, cut down on exploration and downstream investments (LNG terminals in Europe), forced the mothballing of existing storage and generation sites. Ecosystem changes have a natural pace. Complex transitions like in energy, take time, perhaps even decades. Forcing them through in a few years can rebound. I don't know for sure, but from following the global energy markets I have a feeling that this may be the problem. Unfortunately, it's going to get worse and show up elsewhere over the coming years. And it's going to show up in other fossil fuels too.

I'll blog on this in the coming days.