The next negative prices in energy contracts could soon be seen in European natural gas prices as lockdowns batter demand while storage capacity for the commodity is running out, analysts and traders told Reuters on Friday. “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,” a European gas trader told Reuters.
Prices at the Dutch TTF hub and the prompt UK wholesale gas prices have recently slumped by 20-30 percent to low single-digits, and there is a risk that they may go negative because gas demand in Europe is still very weak while storage is close to capacity.
UK prices once turned negative in October 2006, when the new Langeled pipeline from Norway boosted supply at a time when UK gas storage capacity was 96 percent full.
Earlier this month, ENN Energy Holdings, one of China’s largest natural gas distributors, said it was not ruling out the possibility that natural gas prices could follow last month’s WTI Crude move and flip to negative because of insufficient storage.
“For natural gas, I have heard about the possibility of negative prices. I also think it could happen,” Wang Yusuo, chairman at ENN Energy Holdings, said at the company’s online shareholders’ meeting, without specifying which natural gas benchmark in which region could turn negative.
The demand and storage situation in the UK looks particularly weak, according to Wood Mackenzie.
“The industry and power sectors account for most of the UK’s summer gas demand. And both of those sectors have been hit hard by the lockdown,” said Hadrien Collineau, a senior analyst with Wood Mackenzie’s gas team.
UK gas storage could be full by early June, Collineau says.
“With UK summer demand expected to be lower than average and with limits on storage capacity, it’s clear that there is very little space for any additional supplies. LNG exporters hoping to place cargoes into the UK market have the most to lose. There simply won’t be any more space.”