Gas prices may have peaked, but the cost hike could hold beyond 2022

Gas prices may have peaked, but the cost hike could hold beyond 2022
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Updated 08 October 2021

Gas prices may have peaked, but the cost hike could hold beyond 2022

Gas prices may have peaked, but the cost hike could hold beyond 2022
  • Europe is suffering as Asia is willing to pay more for gas

Could we see $2 gas in Europe in 2020? That was the title of an analytical commentary published on the Oxford Institute of Energy Studies website back in October 2019.

Just two years on, and the price of gas is tipping $7. What happened to make that question so redundant?

In 2019, both of the European gas price benchmarks — UK National Balance Point (NBP) and Dutch Title Transfer Facility (TTF) — went below the $4 per 1 million British thermal units (Mmbtu), as the oversupply of Liquified Natural Gas (LNG) from the US surged towards the European market.

Natural gas prices in Europe began to rise slowly from December 2020 and by April 2021 they had already reached the October 2019 level (around $7 per 1 Mmbtu, or €20 per 1 MWh). However, the price did not then stabilize and the market got even tighter. From April to October 2021 the price of the TTF futures for November 2021 delivery surged by more than 350 percent.

On 1 October 2021, the prices for UK and TTF gas futures for the November 2021 shipment closed at $33 and $32 per Mmbtu, compared to the closing prices of $7 and $6.5 per Mmbtu on 7 October 2021, respectively.

Two years on from speculation that gas could drop to $2, is the more pertinent question now, given the exponential rise in prices: Could we see $50 gas in Europe in 2022?

Either answer to this question contains worrying consequences. If the price does continue to rise, is it because of fundamental factors that the energy market has yet to admit and rationalize?

Conversely, if the cost is only a temporary blip, should the world prepare itself for a bursting bubble which could trigger a new crisis situation in either energy markets? With the world economy still getting back on its feet after the pandemic, an energy-fuelled crash could deliver a knock-out blow to fragile states.

Kirill Bakhtin, oil and gas analyst at Moscow-based Sinara Financial Corporation, co-led a report on the Russian gas sector which was published last month.

He told Arab News it is harder to perform a health check on the global gas market as it is more fragmented and offers less information than the oil market.

Kiril Bakhtin, Sinara Financial

However, Bakhtin did flag up a drop in European gas storage inventories since July — dropping below the average for the last 5 years — as a matter of concern.

Bakhtin said there was a “combination of several factors” behind the dramatic gas market price rise, explaining: “First, the economic recovery after the pandemic; second, the hot summer this year required more electricity for air conditioning.

"In addition, gas production in Europe in the first half of 2021 did not increase compared to the first half of 2020, as at a number of fields in the UK and Norway deadlines for maintenance completion were overdue.”

Another important factor was the drop of LNG inflow to Europe as Asian markets were quite simply willing to pay more for gas.

These factors combined saw demand in Europe in the first half of 2021 grow by 14 percent, while domestic production dropped by 11 percent and LNG imports fell by 16 percent.

“Although Europe's total gas imports grew by 13 percent over the first half of 2021, it was not enough to compensate for the growth in demand and losses from the temporarily suspended production,” said Bakhtin.

TTF gas futures on the Intercontinental Exchange show the quotes for the November 2021 shipment have grown more than 5-fold since the beginning of the year, up from €17.6 to €94 per 1 MWh.

In the meantime, prices for the October 2022 shipment, which comes in after the end of the upcoming heating season 2021/2022, stand currently at the level of €44 — representing a more restrained 2.8x growth year-to-date.

Bakhtin argues that this shows the gas deficit, although apparently not as large as this year, will continue into 2022.

He also claimed that the growing price of oil compared to 2018 “allows us to foresee a relatively higher gas price, based on the assumption that the prices for these two energy carriers are correlated.”

Sinara’s long-term house view for the TTF price is $300 per 1,000 cubic meters.

As for the US LNG currently priced on Henry Hub at $5.2 per 1 Mmbtu, it plays the role of a balancing supplier in the global gas market, Bakhtin says. Shipment charges included its current cost in Europe should be $11 per 1 Mmbtu, but in the longer term its cost on delivery to the European market should fall to $8 per 1 Mmbtu, according to Sinara's forecast.

On September 30 the Japan-Korea-Marker (JKM), a benchmark for spot LNG contracts in Asia, rose to $34.47 per Mmbtu, or $100.3 per 1 MWh, which still implies a premium over the TTF. This means the US LNG sellers will still have more incentive to direct their shipments to Asia than to direct it to Europe.

“According to our estimates”, Bakhtin concluded, “the price of gas in Europe is currently at its peak, it will gradually decrease in 2022-23, though it will still be quite high”.


Saudi Wafrah appoints Khaled Saleh Al Amoudi as CEO

Saudi Wafrah appoints Khaled Saleh Al Amoudi as CEO
Updated 13 sec ago

Saudi Wafrah appoints Khaled Saleh Al Amoudi as CEO

Saudi Wafrah appoints Khaled Saleh Al Amoudi as CEO

RIYADH: Saudi food firm Wafrah for Industry and Developments has appointed Khaled Saleh Al Amoudi as CEO on Thursday, according to a bourse statement. 

The decision follows recommendation from the Remuneration and Nomination Committee.

With a M.Sc.in Financial Management, Al Amoudi currently holds the chief financial officer position at the firm, with more than 20 years of accumulated experience as CFO and in the governmental and bank sectors.


Tadawul approves $755m government debt listing

Tadawul approves $755m government debt listing
Updated 7 min 9 sec ago

Tadawul approves $755m government debt listing

Tadawul approves $755m government debt listing

RIYADH: Saudi stock exchange Tadawul approved listing of SR2.83 billion ($755 million) worth of government debt instruments, submitted by the Ministry of Finance, according to a bourse filing.

The first issuance dated January 8, amounts to SR1.25 billion, Tadawul said in a statement.

The second issuance dated January 12, is valued at SR1.59 billion.


Profits of Saudi-based SADAFCO drop 28.6% as pandemic hits sales

Profits of Saudi-based SADAFCO drop 28.6% as pandemic hits sales
Updated 10 min 28 sec ago

Profits of Saudi-based SADAFCO drop 28.6% as pandemic hits sales

Profits of Saudi-based SADAFCO drop 28.6% as pandemic hits sales

RIYADH: Saudia Dairy and Foodstuff Co., or SADAFCO, reported a 28.6 percent decline in profit during the nine months ending Dec. 31, 2021. 

Profits dropped to SR146 million ($38.9million), compared to SR205 million in the corresponding period a year earlier, the company announced in a bourse statement.

SADAFCO attributed the lower profit figures to lower sales volumes driven by the pandemic, an increase from 5 percent to 15 percent in VAT, and higher material and logistics costs.

The financial statements of the company indicated a healthy cash flow, with a strong cash position of SR679 million.

SADACFO’s share price edged down by 0.12 percent in today’s session to close at SR167.

Earlier, the company’s board recommended cash dividends at SR3 per share for the first half of the fiscal year ended Mar. 31, 2022.

Jeddah-based SADAFCO operates sales and distribution depots in 24 locations across Saudi Arabia, Bahrain, Qatar, Jordan, and Kuwait. Its products are also exported to several countries in the MENA region.

 


South Korea’s Kakao Pay loses its three most senior executives

South Korea’s Kakao Pay loses its three most senior executives
Updated 16 min 6 sec ago

South Korea’s Kakao Pay loses its three most senior executives

South Korea’s Kakao Pay loses its three most senior executives

South Korean fintech firm Kakao Pay Corp. saw three of its leading executives quit on Thursday amid shareholder rebellion.

According to Bloomberg, the company's CEO, chief financial officer and chief business officer all resigned.

This comes as the CEO, along with other executives, faced criticism from by shareholders for selling down some of their stakes in the stock market after its November debut.

This dragged down investor sentiment in the process, slashing a total of $25 billion off the market value of the firm and its affiliates.

While the resignation of chief executive officer Alex Ryu was anticipated, that of chief financial officer Kijoo Chang and chief business officer Jin Lee came as a surprise.

The IT giant’s listed vehicles saw a 6.3 percent jump — its largest in three weeks — in shares on Thursday, after severe losses experienced a day earlier.

 


Gas Arabian Services to offer 790k shares on Nomu

Gas Arabian Services to offer 790k shares on Nomu
Updated 38 min 24 sec ago

Gas Arabian Services to offer 790k shares on Nomu

Gas Arabian Services to offer 790k shares on Nomu

RIYADH: Dammam-based Gas Arabian Services will start offering 790,000 ordinary shares on the parallel market Nomu on Sunday Jan. 23, according to a bourse filing. 

The number of shares amounts to 5 percent of the company’s capital, priced at SR75 to SR90 ($20 to $24) each. 

The offering duration will take place for four days, till Jan. 27 2022.   

FALCOM Financial Services Co. is the lead manager of the initial public offering.