Gas producers should reduce supply on the market to avoid prices reaching negative territory given Europe’s low natural gas demand and the possibility of full storage capacity being reached, Thierry Bros, professor at the Paris Institute of Sciences Po and a specialist in gas markets said on Wednesday
Bros told Anadolu Agency that he was making a case that all oil and gas producers should not flood the market with supply with demand down in Europe.
He urged that action should be taken by all and not left to energy giants like Gazprom.
"If Gazprom is doing this alone and LNG is increasing, as Qatar is saying, it won’t solve the problem. Once storage is full, be it WTI oil in the US or gas in the Dutch TTF [Title Transfer Facility] in Europe, the only way to balance is to go into negative pricing. We are seeing this often in electricity because there is no storage option," Bros explained.
Many experts believe that as gas storage fills up amid large volumes of LNG supply from Qatar and the sharp decline in demand due to the pandemic, the possibility intensifies that gas prices in European markets will drop below zero.
However, negative prices will not be seen in countries, like Turkey, which does not have an established hub like the TTF in Europe, he said.
As of May 27, gas storage capacities in Europe were 71% full compared to 56% a year ago, according to the data from the Association of Gas Storage Europe (GSE).
WTI oil prices in the US traded below zero for the first time in history in April 2020.
Zero or negative prices mean that natural gas sellers in Europe will be forced to give out gas for free or even pay extra for it to be taken off their hands.
Prices at the Dutch TTF hub and for prompt UK wholesale gas prices recently slumped by 20-30% to low single-digits due to weak demand amid coronavirus lockdowns and increasing renewables output with little available gas storage space left.
According to energy research company Rystad Energy, commercial and industrial demand for natural gas is declining as most countries around the world are imposing lockdowns to limit the spread of Covid-19.
The energy research company estimates global natural gas demand will fall by almost 2% this year as a result of lower economic activity.
It also expects oil demand, like gas demand, will also suffer as a result of the slowdown.
"2020 will be the first year since 2009 where there will be no growth in consumption. This will be a hard blow for an industry accustomed to yearly growth rates of more than 3%," said Rystad Energy’s Head of Gas and Power Markets Carlos Torres-Diaz on May 18.
By Murat Temizer