The price of futures on the TTF neutral gas price index market in January stood at a mere $250 per 1,000 cu.m. By August, it had leapt to $500 and by the first week of September to $800.
The reason behind the price rise was unusually cold weather at the beginning of the year in most countries in the Northern Hemisphere. In Japan, at the beginning of January, the temperature plunged to – 22 C.
Traders from Japan, China, the United States and European countries fought for every shipment of liquefied gas to make up for shortages. In Europe, gas suppliers trying to ease shortages started looking for gas in storage areas. By the end of January, transactions to secure gas from underground storage hit record levels—25.4 billion cu.m. Europe faced bitter frosts in February with gas storage areas at less than half capacity.
Passions cooled on the market by mid-spring, but re-ignited in the summer. In July, gas futures climbed to $400 and in August cleared the $500 level per 1,000 cu.m. Demand for gas whipped up prices, spurred on by a hot summer and by air conditioning systems in full use.
But the change of seasons did not bring stability to the market. A hot summer and a reduction in gas supplies from Russia meant that with winter – and the “heating season” – looming, Europe was facing empty underground storage areas.
By mid-September, the levels of stocks in Europe’s underground storage areas stood at only 69 % – 15.7 percentage points lower than the average level over the past five years.
Despite the huge lag, the average rate of pumping gas into European storage areas stood virtually at the same level recorded over many years. The European market was using fuel more and more for current use rather than sending it into storage. That meant that on working days, levels of gas input to these areas was one quarter less than the average level seen over many years.
By mid-September, gas prices underwent a new upward jolt. Over several days in September, October futures on the London exchange shot up $150 to hit $964 for 1,000 cu.m. That as just short of the record set in 2018 of $969. And within days, it abruptly sank by $250 only to start climbing rapidly upward once again.
This time, the increase was caused by a lack of windy weather. This brought a halt to wind power stations and pushed up electricity prices sharply, as well as demand for gas.
Analysts pointed to the effects of sharp changes in temperature and movements of air masses brought on by the processes of global warming.
Not even the International Energy Agency could deny the weather factor.
“The steep rise in European gas prices has been driven by a combination of a strong recovery in demand and tighter-than-expected supply, as well as several weather-related factors,” the IEA said in a statement issued on the situation on gas markets.
“These include a particularly cold and long heating season in Europe last winter, and lower-than-usual availability of wind energy in recent weeks. European prices also reflect broader global gas market dynamics.”
Periods of severe cold had gripped Eastern Asia and North America in the first quarter of 2021, the IEA said. There then followed heat waves in Asia and drought in various regions, including Brazil.
“All of these developments added to the upward trend in gas demand. In Asia, gas demand has remained strong throughout the year, primarily driven by China, but also by Japan and Korea. On the supply side, liquefied natural gas (LNG) production worldwide has been lower than expected due to a series of unplanned outages and delays across the globe and delayed maintenance from 2020.”