To The Moon

The fluctuation of European natural gas price caused by Russia-Ukraine conflict is coming to an end.

The United States is replacing Russia as the main energy supplier of the European Union, superimposing the popularization of European LNG infrastructure construction, and the framework of European natural gas de-Russianization has basically taken shape, making the contradiction between supply and demand in European and American markets have improved, and European natural gas prices have continued to fall

​LNG consumption in Europe may be released in summer

For most areas, the demand for natural gas is usually high in winter, which is the peak of natural gas use because it is used to heat houses and buildings. As the temperature drops, people usually turn on the heating, which increases the demand for natural gas, which is relatively low in summer because people don't need to heat it.

It's slightly different for Europe, Although the demand for natural gas in summer in Europe is far less than that in winter, But because some European countries rely on natural gas for power generation, In order to meet the increased demand for electricity, in the hot summer weather of July and August in the northern hemisphere every year, the use of air conditioners and fans in developed countries in Europe increases, thus increasing the use of natural gas in summer.

Because of this, there are two peaks of natural gas use in Europe in summer and winter, and the peak in summer is lower than that in winter.

In addition, gas storage is also a reason for the increase of natural gas demand in Europe in summer. Most natural gas equipment in Europe will be maintained and overhauled in summer to ensure reliable natural gas supply during the peak winter, while European gas storage facilities usually store natural gas in summer for the peak winter demand, which is more prominent after the Russian-Ukrainian conflict.

We believe that the weather is an important reference factor when predicting the natural gas situation in Europe, whether in winter or summer. The supply and demand of natural gas in Europe depends more on the hot degree in summer and the cold degree in winter. As long as the climate in summer and winter in Europe is not particularly extreme this year, the probability of extreme natural gas market is small.

US natural gas exports to Europe have increased greatly

Market concerns about European gas mainly stem from the Russian-Ukrainian conflict, The conflict between Russia and Ukraine broke out in early 2022, which caused Russia to gradually reduce the energy supply in Europe. Europe had to seek LNG energy imports from the United States, Australia, Qatar, Saudi Arabia and other countries to make up for the gap of about 45% imported from Russian pipelines, which directly led to the confusion of global natural gas supply and demand pattern and abnormally high natural gas prices in Europe.

However, Europe is more confident this year than last winter. Last month, the director of the German Federal Network Agency (BNetzA) said at an energy summit that "we are confident that we no longer need to worry about the shortage of natural gas this winter".

This is mainly due to the increased export of liquefied natural gas from the United States to Europe. Bloomberg estimated that the export volume of liquefied natural gas from the United States reached 81.2 million tons last year, which was tied with Qatar, and the two countries tied for the largest exporter of liquefied natural gas in the world.

According to the data, the United States is further increasing the export of LNG. The American Freeport has exported LNG for the first time since it was shut down due to fire in June last year. At present, the No.3 production line has been completely restarted and is ready to increase to full speed. At the same time, it is ready to start the restart of the No.2 production line, and it is expected that the No.1 production line will continue to follow up.

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LNG price drop stimulates consumption

Since the conflict between Russia and Ukraine, due to the high energy prices, the consumption of European residents is generally conservative, and their emotions have been suppressed to some extent. After the sharp drop in natural gas, the fear of energy shortage of European enterprises and residents has eased, and the statements of European officials have further strengthened this expectation.

Falling gas and other energy prices have lowered inflation across Europe, meaning that European residents can spend their savings on other areas, and the rising proportion of consumption in other areas has also supported the European economy. If a fall in gas prices can bring inflation down quickly in Europe, it will help Europe to end austerity as soon as possible.

Therefore, we should not be too pessimistic about the European economy at this stage. At least at present, Europe has shown resilience beyond market expectations, and the good economy is a support for natural gas prices.In terms of investment direction, we believe that with the further increase of US exports to Europe, it is very likely that short-term natural gas will continue to fall, but the good expectation of European economy will support natural gas, and the downward space of medium and long-term natural gas is relatively limited. Investors can be concerned about the opportunity of price reversal of Chicago Mercantile Exchange Henry Port Natural Gas Futures Contract (product code: NG).

With the increasing demand for natural gas imports in Europe, South America and Asia, investors' demand for natural gas risk management is increasing day by day. In order to meet the demand, Chicago Mercantile Institute provides Henry Port natural gas futures, allowing participants to manage and hedge risks in the highly volatile natural gas market. As we mentioned earlier, American natural gas exports to Europe have increased greatly, and this trend also makes Port Henry natural gas futures contracts play a more important role. The core of the U.S. gas pipeline system is located at Henry Hub Distribution Center in Eras, Louisiana, and Henry Port natural gas futures contracts are being delivered at Henry Port, so it becomes a pricing reference for U.S. natural gas and then shipped to the international market. In other words, Port Henry natural gas futures have become the price benchmark for global trading of natural gas, providing one of the most cost-effective ways to manage risks in highly volatile natural gas markets.

Port Henry natural gas futures contract is abundant in liquidity, with 400,000 contracts traded every day and 1.4 million lots of positions. It is the third largest physical commodity futures in the world, and its usage in South America, Asia and Europe is increasing. Investors can conduct electronic trading for nearly 24 hours through CME Globex and CME ClearPort, so as to achieve the purpose of controlling large contracts with a small amount of funds.

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