TMN - Natural gas

Natural gas prices rose amid Europe’s high cooling demand

On August 17, natural gas prices spiked as Europe’s flaming summer triggered higher-than-normal cooling demand, exacerbating an energy crisis.

At the time of writing, NGAS futures are trading higher by 1.21% to $9.442 per million metric British thermal units in Wednesday’s afternoon European session after closing at 2.60% in the previous session.

The region’s current hot and dry weather is causing river water levels to rapidly drop, hampering the transportation of energy commodities. Hence, it could force utilities to use more gas as a replacement, adding for further demand at a time when Russian supply continues to crunch.

This week, the water level at a key point in the Rhine, which is western Europe’s most used river for fuel and industrial goods transport, hit a new low. Besides, shallow levels are forecasted to remain for the rest of the week.

Energy prices in Europe have been surging following the Kremlin cut its gas supplies to the region. This includes the Nord Stream pipeline, wherein its capacity declined further from 40.00% to 20.00%.

On Tuesday, Russian gas giant Gazprom said that if the current gas supply woes continue, European gas prices could rise by about 347 euros per megawatt-hour this winter.

NGAS price volatility hit an all-time high

According to the Energy Information Administration (EIA), the NGAS price volatility hit an all-time high record earlier this year and it remains elevated on weather-driven demand and soaring LNG exports.

The price volatility, a measure of how much daily prices change, reached its highest level in 20 years in February 2022.

Based on the Henry Hub front-month futures prices, the 30-day historical volatility of US natural gas prices averaged 179.00% in the first two months of the year. It is higher compared to the five-year average of 48.00%.

EIA stated that natural gas’ price volatility is typically higher during the first quarter for every year amid high heating demand in winter in northern countries.

 

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