Analysis-Gas price shock set to add to Europe’s industrial pain
By Forrest Crellin, Nora Buli and Nina Chestney
PARIS/OSLO/LONDON (Reuters) – Europe’s struggling industries are bracing for a new gas price shock over the coming winter months, as colder weather depletes stocks, competition with Asia for liquefied natural gas intensifies, and the prospect of reduced Russian supplies looms.
Since the energy crisis of 2022, when gas prices peaked at nearly 350 euros per megawatt hour (MWh), dozens of firms across Europe have closed factories and cut activity and jobs as high gas prices undermined their competitiveness.
Many are maintaining reduced demand and lower manufacturing activity, with negative implications for Europe’s sluggish growth.
European Union gas demand is 17% below the five-year average observed during pre-pandemic years.
At the same time, gas prices are at their highest level in over a year and analysts predict they will rise further.
“The concern is that we are laying our guard down because energy prices are lower now than what we saw in 2022,” Svein Tore Holsether, CEO of Oslo-listed Yara, a fertiliser company, told Reuters in October.
“It’s important to remind ourselves that we’re still at much higher levels than other key regions like the U.S., the Middle East, and Russia.”
Nervousness about the expiry at the end of the year of a Russian transit deal to supply gas to Europe via Ukraine has helped to drive buying.
Francisco Blanch, the head of commodity and derivatives research at Bank of America, said it could push EU gas prices as high as 70 euros/MWh next year from nearly 50 euros/MWh now.
That compares with average EU gas prices of 17.58 euros/MWh over five years before the pandemic, LSEG data showed.
EU-wide gas inventories are 85% full, some 10 percentage points lower than a year ago, according to Gas Infrastructure Europe data.
That makes the current winter already feel uncomfortable, said Barbara Lambrecht, an analyst at Commerzbank, as cold snaps would cause storage levels to fall faster than during the last two relatively mild winters.
To try to safeguard supplies, the European Commission last week increased its storage filling target, potentially adding to the upward pressure on prices.
SHRINKING INDUSTRIES
Dozens of factories in Europe closed and nearly a million manufacturing jobs were lost over the last four years, Bernstein data showed.
In a report on Europe’s competitiveness in September, former ECB chief Mario Draghi said the loss of relatively cheap Russian gas following the 2022 outbreak of war in Ukraine had a “huge cost” to the economy and that fossil fuels would be needed at least for the remainder of the decade.
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