Gas markets still work: Energy Trading Day panellists

European gas markets are still functional and prices continue to reflect fundamentals, panellists said at the Energy Trading Day event in Zurich yesterday.

"The market is working" and is delivering "robust prices", European gas industry association Eurogas' wholesale markets executive advisor Gunnar Steck said.

High European gas prices have attracted LNG cargoes, allowing Europeans to meet demand and fill storage sites, while limiting LNG purchases in Asia, European Federation of Energy Traders' (Efet) board member Doug Wood said.

European gas prices can be explained by fundamentals, but they also pose challenges, Steck said. "We have to adapt to higher prices" for gas and electricity and what this is doing to Europe's competitiveness in the manufacturing industry, he said.

And capping European gas prices would limit supply, Shell northwest European gases regulatory affairs team lead Joachim Rahls argued.

At an emergency meeting earlier this month, EU energy ministers came out broadly in favour of some form of price cap on gas imports, but the ministers called for deeper analysis before presenting legal proposals. Among the options discussed were a blanket cap on all imported gas or a price limit specifically on Russian pipeline imports.

Other proposals included changing the way gas is priced in Europe, with some suggesting that indexing European gas prices to LNG prices could lower the cost of supply. Some have argued that the TTF is no longer a valid regional benchmark, while pointing to wide differentials between European hubs.

Days after that meeting, EU energy commissioner Kadri Simson said the European Commission's emergency package would not include a price cap for Russian pipeline gas imports, as more assessment was needed.

Rahls warned that LNG indexation could be "opaque". Market prices represent an equilibrium of supply and demand, Rahls said, adding that the real question is why TTF prices have delinked from other hubs. "We have seen changes in flows; we do see now bottlenecks at cross-border points," he said.

Looking ahead, Steck said he did not expect European wholesale gas prices to be capped, as it would be difficult to implement and would require a "remodel" of the whole European gas market.

Rahls suggested "targeted intervention" for consumers unable to afford energy, but said price signals should remain to prompt a reduction in demand.

Over the next four to five years, Europeans can only reduce demand, as investments in infrastructure and upstream projects often require more time, Steck said.

European firms' existing contracts with Gazprom also present a challenge, panellists said. According to Wood, companies unsure of what might happen to contracted supplies from Gazprom are also having to negotiate long-term contracts for LNG supply.

By Eleni Charisi