By Forrest Crellin, Nora Buli and Nina Chestney
PARIS/OSLO/LONDON (Reuters) – Struggling European industries are bracing for another gas price shock in the coming winter months as colder weather depletes supplies, competition with Asia for liquefied natural gas increases and the prospect of reduced Russian supplies looms.
Since the 2022 energy crisis, when gas prices peaked at almost 350 euros per megawatt hour (MWh), dozens of companies across Europe have closed factories and cut operations and jobs as high gas prices undermined their competitiveness.
Many maintain reduced demand and lower production activity, negatively impacting slow growth in Europe.
Gas demand in the European Union is 17% below the five-year average before the pandemic.
At the same time, gas prices are at their highest level in more than a year and analysts predict they will rise further.
“The concern is that we are letting down our guard because energy prices are now lower than what we saw in 2022,” Svein Tore Holsether, CEO of Oslo-listed Yara, a fertilizer company, told Reuters in October.
“It is important to remind ourselves that we are still at a much higher level than other major regions such as the US, the Middle East and Russia.”
Nervousness about the expiration at the end of the year of a Russian transit deal to supply gas to Europe via Ukraine has boosted purchasing power.
Francisco Blanch, head of commodities and derivatives research at Bank of America, said this could push EU gas prices up to 70 euros/MWh next year, up from almost 50 euros/MWh now.
That compares with average EU gas prices of €17.58/MWh over five years before the pandemic, LSEG data showed.
According to data from Gas Infrastructure Europe, gas supplies across the EU are 85% full, around 10 percentage points lower than a year ago.
That already makes the current winter uncomfortable, says Barbara Lambrecht, analyst at Commerzbank, because a cold snap would cause storage levels to drop faster than during the last two relatively mild winters.
To safeguard supplies, the European Commission last week increased its warehouse filling target, potentially increasing upward pressure on prices.
SHRIKING INDUSTRIES
Dozens of factories in Europe have closed and nearly a million manufacturing jobs have been lost in the past four years, Bernstein data shows.
In a report on Europe’s competitiveness in September, former ECB chief Mario Draghi said the loss of relatively cheap Russian gas after the outbreak of war in Ukraine in 2022 had “huge costs” for the economy and that fossil fuels would at least would be necessary for the economy. rest of the decade.
“Even though energy prices have fallen significantly from their peaks, EU companies are still faced with electricity prices that are two to three times higher than those in the United States. Natural gas prices paid are four to five times higher,” the report said.
Current EU prices are almost five times higher than US gas, which trades at $3.095/mmBtu, equivalent to 10.02 euros/MWh.
A survey by the German Chambers of Commerce (DIHK) in August found that high energy prices and a lack of reliable energy supply were hampering industrial production and prompting some German companies to consider moving abroad.
Yara’s CEO also told Reuters that the company was “shifting our energy exposure away from Europe.”
German industry lobby group BDI has cited high energy prices as one of the factors threatening the competitiveness of Europe’s largest economy.
“The risk of deindustrialization due to the silent migration and the exit of many small and medium-sized enterprises in particular is constantly increasing,” BDI chairman Siegfried Russwurm, who also sits on the board of German industrial conglomerate Thyssenkrupp, said in September .
In France, industries expect to operate at 70-80% of capacity this winter due to high energy prices, especially in the chemicals sector, Nicolas de Warren, chairman of French industrial lobby group Uniden, told Reuters.
“With the industry still in trouble, there is no reason to believe that gas demand from that sector will make a comeback this year,” Rabobank analysts said, adding that any increase in demand from the heating sector was possible.
Current storage levels in the EU are in absolute terms around 10 billion cubic meters (bcm) lower than last year and the difference will mainly be absorbed by imports of liquefied natural gas (LNG), said Helge Haugane, head of the gas and energy trading. at Norway’s Equinor, the EU’s largest gas supplier, said.
That will come at a cost as competition for available supplies increases.
While the European Union has avoided imposing sanctions on Russian gas, on which some member states are heavily dependent, it has restricted Russian LNG supplies.
The European Parliament voted in April for rules that would allow European governments to ban imports of Russian LNG by preventing Russian companies from booking gas infrastructure capacity.
That could increase the withdrawal of storage capacity and push the EU to compete harder with Asia for LNG from the US and the Middle East.
Europe imported 11.3 billion cubic meters (about 170 cargoes) of LNG in November, mainly from the United States and the Middle East, according to LSEG data.
(Reporting by Forrest Crellin, Nora Buli and Nina Chestney; additional reporting by Christoph Steitz in Frankfurt, Jesus Calero in Gdansk and Mark John in London; Writing by Nina Chestney; Editing by Barbara Lewis)
