It was reported that operators in the Dutch market were trading gas at a negative price. At noon on the 24th, gas was trading at -15.78 euros /MWh before returning to positive territory. That’s what happened to oil prices at the beginning of the pandemic. In the first few months of the pandemic in 2020, oil futures plunged to -$40. This happened in April when many economic powers suddenly stopped doing business and there was plenty of oil around the world but not enough storage space.
Given that European one-month gas futures contracts are trading at close to €100 per MWh, the fall is astonishing. How did natural gas go negative? Futures have also fallen sharply and are now 70 per cent below their August peak of €350 /MWh. The reason is that European countries are importing large quantities of liquefied natural gas in the face of dwindling gas supplies from Russia. LNG storage is more complex, with less reserve capacity available, such as regasification plants, which require a complex set of processes. European countries used to buy as much as they could and did not have large LNG storage infrastructure. Europe has more than 93% of its natural gas reserves, according to AGSI, and the infrastructure that consumes them has not kept up.
Even macro-regulation of the European gas market has had little effect. Europe’s gas clearing market is run by the Us-Based Intercontinental Exchange (ICE), which organises and clears gas entering the Netherlands via futures. But the problem is that natural gas is not measured in volume or number of containers, such as barrels of oil. Natural gas is measured in time-dependent power units, which makes physical delivery of natural gas extremely complicated. This feature means that cash or spot markets, also managed by ICE, also use physical delivery contracts through gas rights transfer (TTF). Spot markets for most commodities trade in physical terms, but natural gas is essentially traded in options.