Santander Corporate & Investment | According to Bloomberg, European Commission Vice-president Maroš Šefčovič expects EU plans for joint natural gas purchases to take their first step next month. The commissioner cites initial estimates of a demand of 24 billion m3 over the next three years. Once the tender is launched in April, the EU expects the first contracts with suppliers in regions such as the US, the Middle East and Africa to be signed by June. The aim is to ensure a steady supply of natural gas to Europe and avoid the market conditions that caused an unprecedented spike in gas prices in the summer of 2022. EU regulations already required the joint purchase to fill 15% of Europe’s gas storage capacity, the equivalent of about 13.5 milliom m3, against imports from the region of 338 million m3 in 2021. Bloomberg reported that Šefčovič has seen interest in joint purchases by industrial gas consumers in sectors such as steel, aluminium, ceramics, glass and car production, and that more than 50 gas suppliers had expressed interest in participating. Europe currently has gas stocks at 58.9% of capacity, in contrast to the average of 37.9% recorded in 2016-20, with just over three weeks remaining in the heating season, which has been largely due to a mild winter and contraction in demand.
We believe that coordinated joint EU purchasing could help avoid the gas supply scramble that occurred in late summer 2022 and pushed the spot price of gas to €339 per MWh. Current prices of €42.5 per MWh for one-month forward contracts and €49.0 for one-year forward contracts reflect a considerable reduction in market stress, although they are still three times higher than pre-crisis levels. High gas prices in Europe put the European economy at a disadvantage compared to regions with lower gas prices, such as the United States.
We are now more confident that Europe will be able to secure sufficient gas supplies at a reasonable price to see it through the winter of 2023-24 and accelerate the transition to renewable energy sources in the medium to long term to reduce its dependence on natural gas.