Will gas prices turn negative?
Some traders are expecting European gas contracts for near-term delivery to go to zero or even turn negative - which could force sellers to give gas away - following a similar move in the West Texas Intermediate (WTI) oil price last month.
"If supply remains this strong until storage is full, we can possibly see negative prices at some point, as there is no sign of relief from the demand side," a European gas trader said.
"If it will happen today or next week, it’s hard to say. This weekend we have very low demand and strong supply, so weekend prices might go close to negative, Reuters cited the trader as saying.
A month after U.S. crude oil prices collapsed into negative territory, European gas markets are facing the prospect of also slipping into the red after a slump in demand and surging inventories pushed prices into low single digits.
Dutch and British gas prices have plunged due to weak demand amid coronavirus lockdowns and strong renewables output, compounding an already oversupplied market with little available storage space left.
In the European benchmark gas market, the Dutch TTF hub, the day-ahead price was down 20% at 2.50 euros per megawatt hour, equivalent to less than $1 per million British thermal units (mmBtu). Prompt UK prices were up to 30% lower.
Unlike U.S. crude, UK gas prices have traded negative before, falling below zero in 2006 after the Langeled pipeline from Norway started pumping gas to Britain for the first time. Then, also, storage sites were nearly full.
The risk of turning negative is higher for British prompt prices, analysts and traders said, as its only long-term storage site, Rough, closed in 2017.
On Friday, the chief executive of Qatar Petroleum, the world’s largest liquefied natural gas (LNG) producer and major exporter to Europe, said it would not cut its gas exports due to weaker demand.
U.S. Henry Hub gas prices were long seen as a floor for European gas, but Dutch gas has already fallen below those levels.
Gas prices at the U.S. Henry Hub fell to $1.52/mmBtu in March, their lowest since Aug. 1995, but have since recovered by around 12%.
Storage inventory by the end of June in northwest Europe is forecast at 446 terawatt hours (TWh), just 54 TWh below total capacity of around 500 TWh, posing a high risk that storage will be full by the end of July, according to Refinitiv analysts.
The severe drop in European prices has also added to the negative sentiment in Asian LNG prices.
After rising for the past two weeks to around $2.40 per mmBtu, the Asian spot LNG price had dropped by the end of this week, with a deal done at $1.85 per mmBtu at S&P Global Platts Market at the close on Friday.
Years of weak prices have hurt the bottom line of some gas producers, such as Britain’s Centrica, owner of the country’s biggest energy supplier British Gas. Some have been forced to idle gas plants.