As natural gas prices in Europe fell to a 20-month low, industries are switching back to using gas in a tentative sign that European industrial gas demand is rising.
The front-month futures at the TTF hub, the benchmark for Europe’s gas trading, slumped earlier this week to below 40 euros ($43.52) per megawatt-hour (MWh), the lowest price since July 2021, as temperatures were rising, wind power generation was strong, LNG supply ample, and gas inventories way above the average for the end of the winter.
The refining industry, where the switch from fuel oil to natural gas is more easily done, is already showing signs of higher gas demand.
Some manufacturing industries have started to “shift back from diesel or fuel to gas. So it created additional demand,” TotalEnergies chief executive Patrick Pouyanne said on the supermajor’s 2023 Strategy, Sustainability & Climate Presentation this week.
While cheaper gas is welcome news for Europe’s industry, the rise in industrial gas use could pose problems for Europe’s gas storage supply later this year when the continent will be preparing for the 2023/2024 winter.
Yet, the recovery in industrial production in Europe will be slow, according to one of its biggest industries, Germany’s chemicals sector.
“The outlook for the future has brightened somewhat in Germany’s third largest industry,” German chemical association VCI said in a report earlier this month.
“Meanwhile, the major drop in energy and raw material prices in recent months has stabilised the situation where the bottom seems to have been reached,” the association said, but added it does not expect a strong recovery. High energy costs compared to other locations, a lack of orders, and location problems continue to be major concerns, according to VCI.
Last month, the world’s biggest chemicals company, Germany-based BASF, said it would cut 2,600 jobs and close some plants due to the high energy costs in Europe that had burdened operations and profitability over the past year.
By Tsvetana Paraskova for Oilprice.com