The situation in the gas market is still not stabilized. Recently, futures contracts for the commodity jumped one day by as much as 30 percent. These large price fluctuations were caused by a series of small failures at gas plants in Norway and the planned closure of a key production facility in the Netherlands. Indeed, […]
The situation in the gas market is still not stabilized. Recently, futures contracts for the commodity jumped one day by as much as 30 percent. These large price fluctuations were caused by a series of small failures at gas plants in Norway and the planned closure of a key production facility in the Netherlands. Indeed, the Dutch government wants to end natural gas production from the Groningen field. This could happen as early as October 2023. The decision follows damage resulting from earthquakes that have damaged thousands of homes in the region over the years. The production field is scheduled to close on October 1 of this year. A final decision on the closure of the field on be made later this month.
The Groningen field has been a key source of natural gas for western Europe since 1963 and key to the well-being of Dutch finances. Its closure has the potential to increase gas prices in Europe due to a reduction in supply – as it is the largest natural gas field in Europe and one of the largest in the world available for production. However, production from this field has been reduced much earlier , so the effect of the news that production will end later this year should be rather short-term.
On the other hand, a series of small failures at gas plants in Norway have reduced the flow of gas to Europe. In recent days this has coincided with fluctuations in the flow of natural gas to Europe via Ukraine . Currently, the flow through the Uzhgorod (UA) – Velké Kapušany (SK) point is back to normal.
Natural gas inflow to Europe from the beginning of 2023 :
ExMetrix analysis.
Nominations for Norwegian gas are also slowly returning to normal:
ExMetrix analysis.
For the time being, the increase in appointments has not yet been matched by the physical flow of gas to Europe from the Norwegian direction:
Are short-term impulses the only cause of price increases?
This raises the question of whether the mentioned short-term causes of gas price fluctuations in Europe are the only reasons for the observed increase in price volatility. After all, the price increase began in early June, even before the appearance of short-term impulses, and affects not only customers in Europe, but also in Asia, and is accompanied by an increase in prices from suppliers, especially American ones:
At the same time, LNG freight rates have risen markedly in the main directions:
A significant increase in freight rates has also been recorded in China, and this applies to tankers carrying crude oil:
The stimulus package is expected to revive the Chinese economy.
Analysts believe the Chinese economy may rebound somewhat in the short term. Surveys of Chinese companies indicate that auto sales are slowly picking up, and results in the retail and service sectors are likely to surprise positively. The CBB’s revenue and profit margin indicators improved in May for the third consecutive month.
However, this does not mean that a boom is expected, which is just a bit late. China’s economy may begin to reopen, but it is unlikely to reactivate. While domestic consumers may be recovering, the biggest drivers of the Chinese economy, namely real estate and exports, remain weak. Domestic consumption accounts for about 37 percent of the Chinese economy (in the U.S. the figure is about 70 per cent). A return to normal consumer activity is helpful, but not enough to lift the economy. China has never been able to reopen without triggering export and real estate activity. Meanwhile, exports still account for 20 percent of the Chinese economy.
That’s why China is considering a broad stimulus package. Pressure is mounting on the government to stimulate the economy. The stimulus proposals include measures to support the real estate market and domestic demand. There are also proposals to cut interest rates. Recently, the central bank unexpectedly lowered its seven-day rate.
The most significant part of the stimulus package is expected to be to support the real estate market by lowering the cost of outstanding home mortgages and increasing sales through domestic state banks to ensure the supply of homes. The package is not yet approved, and its contents may change.
For now, it is unclear when the new proposals will be announced or implemented. Further details on the scope of the proposed stimulus package are not yet known. Investors will probably welcome further efforts by the Chinese authorities, but a lot depends on the final size and composition of the stimulus measures.
It also appears that monetary policy alone cannot bring about a revival of an economy with record debt with still weak global demand and a lack of confidence among businesses and consumers. In addition, concerns about financial instability among Chinese local governments and real estate developers are causing fears of implementing stimulus packages that helped revive the economy during previous downturns.
