Uncertainty for gas still persists due to supply shortage

Europe’s natural gas traders barely survived some of the most volatile markets of recent times, but the supply contraction that caused October’s huge price swings is far from over, according to Swedish company Vattenfall AS.

Even though benchmark European gas futures are now less than half the all-time high reached early last month, the market remains uneasy. The recent instability has damaged liquidity, making it difficult to enter and exit operations, a situation exacerbated by the need for more collateral, or margins, just to stay in the market.

Traders can get through the next few weeks “unless we have another extreme price spike,” said Frank van Doorn, Vattenfall’s chief operating officer, in an interview at the Flame gas conference in Amsterdam.

“The risks generated by the low liquidity to attend the margins and the credit risk for particular counterparties are still present in the markets,” he said without being specific.

That price increase could occur on November 8, the date on which Europe’s main gas supplier, Russia, has signaled that it will increase flows to the west to alleviate the crisis. Without those shipments ordered by President Vladimir Putin, there are concerns that the market could skyrocket again with storage levels on the continent far below normal as the winter heating season begins.

“If Russia does what Putin said they will do, there will be great relief,” van Doorn said. “If no additional gas arrives on Monday, we could see a significant increase in prices.”

The price reaction will also be felt thousands of miles away in Asia, where the cost of liquefied natural gas to the spot closely follows European rates, said Sophie Ducoloner, managing director of the Singapore office of Swiss operator Axpo Solutions AG. .

Asian players also face spreads, lack of cash liquidity and credit risk, but European or global traders are more affected by market volatility, he said.

“If he’s a traditional Asian actor, he doesn’t really negotiate,” he said. “They have been less affected by margins and lack of cash liquidity, but have been affected by the high price environment.”

The market turns last month came as a big shock to traders, said van Doorn of Vattenfall.

“They all survived the liquidity situation of two weeks ago,” van Doorn said. “But it was a big test for the industry, a real fire drill. And it could have been worse. “