Analysis-Gyrating European gas price forecasts leave companies in the dark
By Kate Abnett and Susanna Twidale
BRUSSELS/LONDON (Reuters) - Dramatic swings in forecasts for European gas prices this year have left companies and governments struggling to plan ahead as uncertainties for the outlook persist, ranging from the pace of China's economic recovery to the impact of war in Ukraine.
Governments are having to guess the scale of fuel subsidy allocations, while fertiliser firms, steelmakers and other energy-intensive industries face tough choices about whether to restart production they halted due to last year's price spike.
Amid concerns that prices could again spike higher, the options for some companies are stark.
"It increases the pressure to close permanently part of the capacity," Axel Eggert, the director of the European Steel Association (Eurofer), said of the uncertain outlook.
Forecasts for 2023 from five analysts for the average European gas benchmark price, the front-month Dutch TTF gas price, had ranged from 64 to 125 euros/MWh in January. Now, the range has narrowed to 60 to 95 euros/MWh.
But even at the lower end of the range, the gas price is still about three times levels in 2020, before prices rocketed higher, driven up by post-pandemic surge in global demand and after a gas crunch in Europe amid dwindling Russian supplies.
"We're doing these calculations pretty much every day ... with some risk that we will restart a plant and then it (the gas price) spikes," said Yara Chief Executive Svein Tore Holsether.
The European benchmark, which shot above 300 euros/MWh last year, is now below 60 euros/MWh, helped by an unusually warm winter and Europe's efforts to store and save fuel. They had stayed below 30 euros/MWh for at least a decade until mid-2021.
Another fertiliser producer, Borealis, said prices were still too high to justify reopening plants it had halted.
Meanwhile companies with older equipment, which may not cope with frequent halts, worry about restarting mothballed capacity.
"It's the first time where there is so much divergence of the potentialities for what could happen - between massive price spikes, to people who think we will be oversupplied (with gas)," said James Watson, head of Eurogas.
'LOOKING AT CHINA'
This year, analysts say the outlook will largely depend on whether Russian supply falls further, the weather forecast and how much gas China sucks in as its economy rebounds.
Chinese and Asian demand for liquefied natural gas (LNG) now has a more direct impact as Europe shifts away from piped Russian supplies to shipped LNG, increasing the focus on China's economic recovery after its "zero COVID" policy U-turn.
LNG imports by the European Union and Britain were almost 70% higher in 2022 compared to 2021, while imports to Northeast Asia and South Asia fell 7%, Refinitiv Eikon data showed.
"Everyone's looking at China. We forecast a 10% rise in Chinese LNG demand this year, but ... would you really be confident talking about China's economy (with) the impact of COVID?" said Ed Cox, LNG Editor at ICIS.
Analysts are regularly having to make reassessments.
At the start of this year, ING analysts were forecasting the European benchmark would average 125 euros/MWh for 2023. This week, they slashed their forecast to 70 euros/MWh, saying they now only expected a marginal recovery in Chinese demand.
Eurofer's Eggert said European industry faced other uncertainties, such as how to compete when the United States was offering hefty green industrial subsidies that could draw away investment from Europe. The EU has been drawing up a response.
Meanwhile, European governments, which splashed out billions of euros in subsidies to help companies and households facing crippling energy bills last year, are struggling to plan ahead.
Germany said in January spending on gas and electricity price caps, part of a 200 billion euro package to help consumers with high energy prices, could be lower than expected. But an economy ministry spokesperson said it was too soon to say by how much and warned against expecting a "hasty reduction".
Britain said in January it would scale back last year's scheme that helped firms cope with high energy bills, while companies complained it was too early to remove the support.
Europe's efforts to expand infrastructure to import more LNG may help avoid a 2022-style spike again, but analysts said the region's supply situation was still finely balanced.
"If the temperature drops and demand increases significantly, the price may also rise again," said Claudia Kemfert, head of energy at the German Institute of Economic Research. "We are now in a serious energy crisis, and far from out of the woods."
(Reporting by Kate Abnett in Brussels and Susanna Twidale in London; Editing by Veronica Brown and Edmund Blair)