LONDON (ICIS)--European fertilizer producers can expect to enjoy lower gas feedstock prices with the mild winter having caused gas stocks to rise to unusually high levels, an investment bank said on Monday.
In a note to investors, analysts Roberty Rethy and Yuriy Kukhtanych of Prague-based WOOD & Company wrote: “European day-ahead and one-month forward spot gas prices have plunged in 2014 in the year to date, down nearly 30% to below $300/million cubic metres (mcm).
"This has been driven by the extremely mild winter and the sharply lower than normal consumption in Europe, which has also led to storage levels standing materially higher (10 percentage points+) than is usual during this part of the year.”
They added: “At the same time, first-season and first-year forwards have held up well, still hovering around $360/mcm, suggesting to us that there has been no structural shift in gas market fundamentals.”
The analysts did not expect any downward pressure on European gas prices in the medium term, saying that “the bias is rather the opposite” due to the looming Russia/Gazprom risks associated with the unresolved Ukraine crisis, the estimated US liquefied natural gas (LNG) breakeven cost for Europe being no lower than $350/mcm and declining or flat European gas production.
But producers such as Gazprom, Romania's Romgaz and OMV Petrom, Austria's OMV, Serbia's NIS and Hungary's MOL are exposed to lower gas prices, they added.
Earlier on Monday, Gazprom's investment standing was boosted when Vienna-based Erste Group Bank raised its stock rating to 'hold' from 'sell', citing the firm's newly agreed huge gas export deal with China.
Explaining the upgrade, Erste said: “The huge $400bn energy deal with China is a big step forward for increased exposure to Asia, which has the fastest growing energy markets. We now see less business risk for the company. Combined with the improved technical situation of the stock we think there is more upside potential compared to the downside risk.”