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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Europe’s Natural Gas Glut May Force Supply Cuts

Europe is so awash with natural gas amid weak demand and limited storage capacity that gas suppliers may have to cut flows to prevent natural gas prices from plunging further.  

Demand for natural gas is still very weak as major economies in Europe are emerging from lockdowns while gas in storage across the continent is at a record high for this time of the year. The natural gas glut has depressed the prices at key European hubs such as the Dutch TTF benchmark. Prices didn’t move much even after the biggest gas exporter to the continent, Gazprom, saw its flows on a key pipeline fall to zero last week.

The flow of natural gas from Russia to Europe via the Yamal-Europe pipeline crossing Poland completely stopped early last week after a two-and-a-half-decade-old transit deal between Russia and Poland expired and after the COVID-19 pandemic battered gas demand in Europe.

Poland has aligned its legislation with the energy regulations of the European Union (EU) and Polish operator Gaz-System began offering capacity bookings on the Polish section of the Yamal-Europe pipeline in accordance with EU regulations, including for Russia’s gas giant Gazprom. But the capacity bookings for the first days following the expiration of the gas transit deal showed little appetite for gas in Europe, according to analysts. Related: World’s Top Solar Panel Producer Opens New Mega Factory

“Natural gas demand is very weak and low prices are signaling supply must be cut,” Trevor Sikorski, an Energy Aspects gas analyst, told Bloomberg.

According to the analyst, another major natural gas supplier to Europe, Norway, could delay some production from the Troll and Oseberg fields due to the weak prices. 

For liquefied natural gas (LNG), U.S. exports are currently unprofitable because the natural gas prices in Europe are lower than the prices of the U.S. Henry Hub benchmark, analysts told Bloomberg.

“Although Europe’s total gas demand is down in comparison to last year, reductions in domestically produced gas and Russian pipeline imports have created more room for LNG to be absorbed. However, the single largest fundamental difference from 2019 is Europe’s vast gas inventories, which currently sit at record seasonal highs and will reduce the continent’s ability to absorb global surplus LNG in Q3 2020,” Wood Mackenzie said in a note on  Tuesday.  

By Tsvetana Paraskova for Oilprice.com

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