Article from Mike Fulwood, Senior Research Fellow.
In September 2021, the OIES published a Comment entitled ‘Why are gas prices so high? The conclusion was that the price rally in 2021 was driven by a collection of fundamental supply and demand factors both in the global LNG market and the European regional gas market. At the beginning of October, the author also published a short piece in the Financial Times suggesting that the surging gas prices were likely to encounter a sharp correction.
This has clearly not happened yet, to any great extent, and this Comment will address the reasons why. More recently, Jack Sharples wrote an Insight which looked in detail at the supply side factors impacting European gas prices.
This reinforced the conclusion that the European gas market in 2021 faced a ‘perfect storm’ of limitations on supply and a year-on-year rebound in demand in both Europe and elsewhere.
This Comment will seek to combine the above analyses and break down the different periods of 2021 as well as the various drivers that informed the surging European gas prices last year. As will be shown, the factors behind the surging prices changed significantly in Q4 2021. Any possible correction to the rising prices, as some of the earlier constraints unwound, was forestalled as more supply was taken off the market.
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