The Specter of Soaring Prices Returns as Europe Faces Potential Gas Shortage By Investing.com

By Ketki Saxena

Investing.com — Once again, concerns are mounting that the European gas market may once again be plunged into crisis, with prices potentially skyrocketing to more than double their current levels due to resurgent demand.

Despite having experienced a reprieve from record-high prices last August—when benchmark natural gas fell below €40 per megawatt-hour amid mild temperatures and consumption-cutting measures—the specter of another market crunch looms large.

A sense of complacency among consumers, ranging from industries and power plants to households, could exacerbate tightening in the market later this year.

This was one key takeaway from delegates attending the recent Flame gas conference in Amsterdam. While Europe managed to weather past winters thanks mainly to benign climatic conditions and China’s waning appetite for liquefied natural gas (LNG), there is no guarantee that such favorable circumstances will persist.

In fact, contracts for winter months already indicate potential price hikes; however, many believe that these projections underestimate just how bullish the situation might become once colder weather sets in. “Early winter cold is the scariest thing,” warned Samantha Dart, an analyst at Goldman Sachs Group Inc (NYSE:GS)., during an interview on the sidelines of the conference.

She added that although weak demand might postpone any sharp price increases until after August—a rally previously anticipated by her bank—prices above €100 remain “very realistic.”

The extent to which last year’s exorbitant prices led to permanent reductions in demand remains uncertain; it is also unclear how much price-sensitive consumption will bounce back when costs stabilize. What is clear, however, is that the market will likely continue to experience tightness until new LNG supplies become available post-2026. 

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now