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Issue title:

Gas market mayhem

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The mayhem on the gas market would already have been a good topic of the month in the last two editions, but other topics and scheduled interviews kept getting in the way. However, gas markets are the topic of this month's issue. One focus is on the consequences for the different parts of the value chain in trading and sales. And these consequences are becoming more and more dramatic. They are almost more important than the steel price increase and the huge intra-day volatility itself. Christian Otto, managing director of Bundesverband der Energieabnehmer (VEA), an association that supports small and medium-sized industrial customers in energy procurement, and Hendrik Fels, managing director of Tengelmann Energie, a procurement company in the retail sector, explained the situation in an ener|gate web talk: Industrial and commercial gas users are no longer finding suppliers. In earlier times, the companies picked the best out of 10 to 15 offers. Now they are happy if they receive one or two offers when they tender their energy need. Suppliers especially avoid flexible supplies, as another source told me, as well.

Another part of the topic of the month is, of course, Nord Stream 2 and Gazprom. Is Gazprom deliberately holding back volumes? I don't know, and I'm a bit reluctant with statements. But the very low flows via the German-Polish border point Mallnow in October, and statements by Russia's President Vladimir Putin that additional volumes could flow the following day after Nord Stream 2 going into operation (at least that's how the media understood and reported it) do not exactly strengthen confidence in Gazprom/Russia. Allegedly, Gazprom will open the taps more in November. Let’s see what happens. 

TOPIC OF THE MONTH Gas market mayhem

One is inclined to talk about a “gas market crisis” or “gas market casino”, as one trader called it. The prices on the gas trading market have been escalating more and more since August. The latest price development can be found in chapter This publication has repeatedly described the fundamental factors behind this development. The simple, short version is that tight supply meets strong demand. Covid-19 and the globally varying global economic recovery from the pandemic is one factor on the demand and the supply side. On top, extreme weather conditions, mainly in Asia and Latin America, pushed demand. On the supply side, structural changes like the dwindling gas production in Europe are one factor alongside the cumulation of outages in LNG liquefaction plants (chapter 3.2.2). This has reduced the LNG supplies. There remains the factor of Russia. In the German public discussion, Russia is subject to increasing accusations of being the main force behind the market tightness and soaring prices; it is alleged that Russia is blackmailing Germany/Europe and purposely reducing volumes to enforce the start of operation of Nord Stream 2. This is the primary argument – but more on that later.

However, fundamental factors cannot be the full explanation of the price turbulences. Especially the extreme intraday volatility is remarkable. The author of this publication does not have a trading screen in front of him. But on some trading days, traders told him almost real-time about price movements.