Winter rationing?

Europe could be forced to extend voluntary reductions in gas consumption to mandatory measures as Russia plays “hardball” by curbing gas supplies before some EU nations like Germany can find alternative sources. Listen to a discussion on the winter outlook and the options – apart from rationing – open to governments and regulators. In the event of mandatory rationing, how would this be organised?

Host: Richard Sverrisson, Editor-in-Chief, Montel
Guests: Nadia Martin Wiggen, Partner and Analyst, Pareto Securities 
                  Leon Izbicki, Associate, Natural Gas, Energy Aspects. 

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly Podcast. Bring Energy Matters in an informal setting. I think it's fair to say that at the core of the current energy crisis or crises is the huge drop in supply of Russian gas. In last week's episode, we talked about Nord Stream one and the likelihood of a complete cut in flows and touched upon the winter outlook. This week we'll talk more about the looming winter wholesale energy. Prices are all time highs. Retail prices are soaring and amid a worsening cost of living prices. Will politicians face mounting pressure to intervene in the market? And what would such measures look like? Perhaps windfall taxes, energy rationing, or even rolling blackouts. Joining me, Richard Sverrisson to discuss current market dynamics and the outlook for the coming winter are Leon Izbicki of Energy Aspects. And Nadia Martin Wiggen, Pareto Securities, a warm welcome to you both.

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 1:03

Good morning.

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 1:05

Thank you.

Richard Sverrisson, Editor-in-Chief, Montel: 1:05

You are joining us for the first time here. Leon, I'd like to start with you actually and yeah, we were discussing Nord Stream one in last week's pod. And the possibility that GasProm may find it difficult to fully cut flows. What are your assumptions about Russian flows over the winter?

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 1:20

So in our base case, we are actually expecting Nord Stream one flows to ramp back up to around 60 M mc MA day over the course of winter. The main reason for this is that. Sustaining flows at around 30 m MCM a day. So where they are at the moment would actually necessitate shutting in wells that are drilling into Ian and ov deposits in in gas pros Western Arctic fields. And this means that there is a higher opportunity cost associated. To that it means that shutting in wells creates pressure differentials, which impacts the overall total recovery from those fields in turn, impacting how much mon, how much gas pro can actually monetize in the future in terms of production. So what we are looking at the moment is that flows at around 60 MCMA day are actually an optimization for Russia in terms of shutting in wells from Panamanian deposits. Which are already heavily depleted, which means that there's not a high opportunity cost associated to doing so, while at the same time also maximizing political leverage over Europe, keeping it on the brink of rationing, but not triggering that to the, to, to this extent. So that said, there is obviously a risk of flows being sustained at 30 MCMA day or a complete cutoff if. The political considerations for Russia start to outweigh the economic calculus in the sense that Russia may perceive that there's only a limited amount of time during which it can actually extract political concessions from Europe as the continent tries to wean itself off of Russian gas. But from the, from a rationality point of view, maximizing for both political and economic goals at the same time would mean that you are looking at NS one flows back up to around 60 MCMA day. Over the course of winter.

Richard Sverrisson, Editor-in-Chief, Montel: 3:07

Okay. Very interesting. I think that's broadly line with some of what we talked about last week. Nadia what's your view here?

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 3:13

I think it, we are largely in line with what Leon has said, but what we're really focusing on are the tail risks to that number, and what is priced into the market already. So we're only at 20% gas flows right now. What does that mean? If we went down to zero. If Russia really wanted to play hardball, that's probably where it's what, 15? Euros per megawatt hour, maybe very largely priced in that we stay at a very low side. On the flip side, what if Russia decided to be nice to Europe and ramp things up as much as possible for how long would they be willing to do this? And that is something that, when we look on the political side, it would have to happen very quickly. September, October ahead of the winter. Because come winter, which could come early, it could come in November. In Ukraine, they want to have that hard ground and be ready to mobilize to get back into the country. So I, and in a fuller onslaught in our view, so when we look on the pricing side, we're looking at minimal relief to the upside because that would only last for a couple months and we're already pricing. In almost no gas flows. So that, that has been our focus.

Richard Sverrisson, Editor-in-Chief, Montel: 4:30

So you think here Russia will play hardball and not be nice.

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 4:35

No I think they are less likely to be nice, and even if they appear to be nice, it will be very limited. It will last for maximum two months, which of course can help us, but it's not enough to, completely change the forward curve for the next three years of natural gas.

Richard Sverrisson, Editor-in-Chief, Montel: 4:48

Absolutely. So what's energy aspect? What's the view here from energy aspects in terms of winter pricing leon?

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 4:53

So what we're looking at in terms of the. Near curve is that, we see it at the moment roughly at fair value and I think we, we are pretty aligned with Nadia's view on that as well. In terms of we are already pricing in, at least flows of around 30 MCMA day via north Stream one. If we actually see those flows being sustained, we would be looking at an end October, 2023, carry out of around 82 BCMs. Very similar to the. Legal minimum target from the European Commission for this year at least significantly below the target for next year. But what the prices are doing at this stage is to actually significantly reduce industrial demand and also to actually start triggering reductions in the res com sector which we are also expecting and implementing in our balances. So that's, this will help Europe to actually balance without further. Mandatory demand side management from governments meaning rationing programs over the course of this winter. If we are looking at a complete halt in Russian flows, so that means also a stop in, in flows via Turk stream and a stop in flows via Ukraine then the situation becomes different and we are again in territory where there is going to be a need for rationing in order to actually balance the market in order to reach an adequate end October, 2023 carry out.

Richard Sverrisson, Editor-in-Chief, Montel: 6:09

Yeah. I think I want to return to pricing in a bit. Potentially to other sources of gas. But Leon, if I can just stick with you, when you say res com, that means residential, commercial,

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 6:18

exactly. Absolutely.

Richard Sverrisson, Editor-in-Chief, Montel: 6:19

Yep. When you say that, could flows increase on other pipes into Europe? We're seeing from Russia and also potentially from Norway

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 6:27

When we're looking at. At Norwegian flows, we are already looking at, flows being at a maximum for this year, and we have total production at around 122 BCM, which also aligns with the figure given by the Norwegian minister of energy in terms of the expected maximum production for this year which is going to feed into pipeline flows and into LNG flows via hammerfest. So there's not really a lot of opportunity to actually increase flows from Norway. And then similarly, we're also looking at other pipeline flows already being pretty much at maximum when we look at top and Zer Bajan, for example, or Al Gian flows into the European continent where we're only expecting an uptake from next year with the completion of the has booster project. That being said, the only additional supply that Europe can actually attract is not via pipe. It is via LNG, simply because also when we look at Russian flaws from a political motivation point of view, they will not increase F flows via Ukraine or Turk Stream. With that being said, what we are also seeing at the moment is that Korean and Japanese buyers, for example, for LNG, are back in the market and they're willing to compete with Europe for that marginal LNG cargo, which means that there's not really any limit to the upside in terms of JKM outright prices and. This just increases the risk over the course of winter, particularly if we see, for example, colder temperatures in Asia that we are going to see LNG flows disappointing versus, versus current forecasts and versus current market consensus, which is just going to further tighten the European market. That means that there is an increased call on prices to actually destroy and reduce more industrial and end consumer demand in Europe.

Richard Sverrisson, Editor-in-Chief, Montel: 8:07

What's your view here, Nadia? Nadia, do you see sim do you have a similar view on flows coming in via Turk Stream or via Ukraine that they're really not gonna help out here and potentially LNG, but then we're in a different price situation? Yeah,

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 8:21

I think on the flow side, absolutely the big question is on LNG and that will drive price and that will drive the market both to the upside versus the kind of medium base case. We were talking about 15. Higher. Both from a shock and inability. We saw this already happen with US experts with the free port outage. If we have another LNG production outage, natural gas outage in the US which can provide that marginal amount of natural gas, that will send prices screaming higher. Similarly, if we see demand jumping as Leon is talking about in Asia. That will send prices much higher. And this is where China's crucial, China, they're importing right now, 10% of their volumes on the spot market last year, Q4, where they were at 50%, the volumes coming into China when they had. Bring in energy at any cost in natural gas led things much higher. And now we are really competing head to head with Asia for those LNG imports. So that's incredibly important. I think on the demand side, what Leon was talking about, we have already seen in June, July that demand destruction in Europe it's about 20% lower. Demand than it was last summer. And that has hit the industrial side in glass production, in fertilizer and that side of things. And the question is, with Nord Stream one down, probably to even reach that November 1st, target 80% storage level, we need at least. 15% demand destruction year over year to continue. The next question though is, what is going to happen in winter for consumers versus the industrial sector? And what we've seen the politicians focusing on so far is that okay. Consumers need to be protected, as in residential people, they need to have heating, whereas industry has to take that hit. What else can the governments do in terms of policy? If we look at the power market, for example, you are allowed to, an industrial player is allowed to tender or re-offer power to the market right now in Europe. In the get natural gas market, you cannot do that. So let's say industrial players who have pre-bought natural gas for the winter, if they then are forced to shut things down and then they could re offer that into the market for the residential users that's not allowed right now. But that is something that I think politicians should really be looking at. Allow that to happen in the market. Will it happen by this winter? It hasn't happened yet, so it's looking unlikely, but I think it absolutely has happened by next winter, because its problem is not going away. This transition is going to take several years, and the forward curve shows that right now.

Richard Sverrisson, Editor-in-Chief, Montel: 11:17

So that would be a, that would be a, a, an absolute an efficient measure for gas, providing that more to the market. But, with. Retail prices, soaring, adding to the woes of millions of households. As and as you say, this is what is in the main, this is the main focus of politicians. What do you expect them to do? Are we gonna see more? Tax cuts. There's a big discussion in the UK about handouts versus tax cuts or VAT cuts. What options do they have on the table for, in terms of alleviating household prices?

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 11:48

In, in the short term it is, what they talked about last year, right? Price caps, price cuts tax cuts rather subsidies. These are, for the electorate, something that is understood. The budgets are suffering. For governments. So I think that is something that is very tricky and this is where, I, when we also look at what is happening in oil markets and other commodities market, I think the governments really need to wake up and understand there is a real crisis. And as we compare Europe to Asia, I just think that Asia has been much smarter than we are. They have more gas to liquid switching capacity than we have. So I'm also an oil analyst, as you know when we're looking at that upside, it's 700,000 barrels per day of additional demand coming during the winter from the oil side because of gas. And 75% of that is coming in Asia. It's not coming in Europe. We do not have that capacity to switch over. Secondly, we've seen the Asias turning inclu increasingly. Nuclear. This summer we have 21 gigawatts available nuclear power versus 16 and a half last year. So they're looking at that alternative, which also frees up some potential LNG capacity for us to buy off the spot market from countries like Japan. And then the third point is when we look at the coal markets and this is where China right now isn't buying LNG. A, as much as they did last year isn't buying oil as much as they did last year. They are all in for quote unquote clean coal. And in the Chinese defense, a new coal plant in China is actually cleaner than an old natural gas plant. In some cases in Europe that because we have so much leakage and so this is where they have more levers at their disposal that we do not. And so that is where I think it is extremely tricky when we see all of these inflationary pressures and recessionary pressures on the governments to actually push things forward.

Richard Sverrisson, Editor-in-Chief, Montel: 13:52

What do you think, Leon, do you also see there's this maybe a lack of urgency amongst governors, governments, or, there is a lot of other, it's a massive cost of living crisis. Inflationary pressures as, and recessionary fears as Nadia just mentioned.

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 14:05

I think. The urgency is definitely there and it is also understood, but I think for policymakers it is a trade off between. On the one hand, short-term goal of trying to alleviate the cost of living crisis and the burden of of high inflation rates on the electorate and on consumers, but on the other hand, simultaneously also actually achieving consumption reductions. If we are talking about further subsidy programs, we already saw Western European governments alone rolling out around 150 billion euros in subsidies for both industrials and for end consumers. But if we are going to see a further increase in those subsidy programs, what we are also going to see as a direct result of this, is less price sensitivity among consumers for residential, like in the residential and commercial sector, and also potentially in the industrial sector. The, those two goals are just not mutually agreeable with one another. They're directly conflicting and diametrically opposed. And policymakers are in that in that decision space at the moment where they will probably have to implement relatively unpopular. Policies in the short term that will feed higher prices into retail terrorists in order to further reduce consumption in order to trigger also in the medium to long term shifts away from from gas, for example, in the heating sector and also in industrial sector. In order to actually get through the winter and through the next years where we are going to see structurally lower Russian flows.

Richard Sverrisson, Editor-in-Chief, Montel: 15:34

If we look at Germany, Leon there is a current, if we have they have several levels of the crisis or they've categorized it in different ways. So we're, if, as far as I understand it, level two now, level one being full on crisis, if we go on to a full on emergency, I should say, if we get to level one, what happens then? Does the government. Does the market stop and the government takes over supply and sourcing demand? Sourcing supply and allocating allocating consumption.

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 16:02

So it's it's not a situation that moving to level one automatically means. Rationing and demand side management by governments, it's, it sets the legal groundwork for the German government to start intervening in such in such circumstances in such ways. But what this means more directly is that in this situation and in which it is deemed necessary, particularly by the Federal Network Agency the BUNES Net Sagan tour, that the market isn't going to balance itself. Bennet will automatically jump in and act as a load distributor, which means that it's not necessarily going to, to source supply. That's something that we have seen, to some extent already taking place anyways via THE sourcing and tendering for for gas as part of the s SBOs. But it's more going to be Bennet actually managing on a day-to-day basis. Which industrial, for example, gets how much gas? So what we are seeing is that at the moment, Bennet is still in the process of actually building out a platform, a transparency platform in which industrials are actually going to transmit their daily consumption data because that's just something that's simply not in place. And that is a prerequisite in order to actually put into place such rationing programs in the case of Germany. So that's, that platform is supposed to be in place by October only at the earliest. And what we are looking at as well is a situation in which I. From a fundamental point of view, all of the rationing plans that are drawn up or have been drawn up in Europe over the last years as part of European energy directives are designed to deal with short term supply disruptions. So we are talking about, for example, a two week outage at Maloff. They are not designed to cope with long-term lasting supply declines due to the current situation that we are in with respect to the geopolitics with Russia. So there are still ongoing talks among policymakers, not only in Germany but across Europe, really, whether, for example, in such circumstances it. Potentially make sense to actually also start rationing gas in the recom sector. This is something that Germany's minister of the Economy, Robert Haik, has suggested simply in order to try and mitigate some of the economic impacts of rationing in the medium to longer term. So what we are looking at is still a situation in which. We have a rough idea of where things are headed and where, governments implicitly are essentially setting prices for gas by rationing and controlling demand, but exactly how those things are going to be implemented, how those things are going to work in practice. That's something that's still being worked out and that we at the moment have no transparency over.

Richard Sverrisson, Editor-in-Chief, Montel: 18:45

But preparations are certainly firmly underway for this eventuality, Leon. But how likely is this? Is it 60% likely, 20% likely? What's your analysis on it?

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 18:55

I think it's very difficult to put a, a likelihood and a percentage to that. We it's definitely, and certainly not our base case, which means that it's less than 50% simply because we think that. That there is still, a lot of incentive for Russia to keep flows at least where they are, if not to ramp up in order to prevent shutdowns from and mov mov wealth. So we are still looking at getting through the winter with an end March carry out of around 30 BCMs. Slightly below the five year average. But definitely still fine. But what we are looking at and I think this also speaks to the tail risks that Nadia mentioned at the beginning of of this session and discussion, is that there is definitely a. Possibility that we are going to see rationing over the course of winter if we are going to see Russia prioritizing political aims and further cutting flows if we are going to see LNG being drawn away from Europe. So it is for us, a a risk because we're treating it still as a risk, not as a base case, but it is a risk that should definitely not be discarded.

Richard Sverrisson, Editor-in-Chief, Montel: 19:55

And what do you think Nadia, what's do you think, how likely are we to see rationing and where in, in which countries are. Is that most possible?

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 20:03

I think price is a good source of driving rationing. So if we're seeing an LNG shock, the prices will be hit the most in Spain, France, uk, and then followed by the Netherlands. So I think those are the governments that would be under the most pressure. To have that rationing. Of course, it also depends how the weather is relatively speaking, right? If we're in a medium temperature, then it's okay. If we're in a cold winter, it doesn't necessarily hit the same way everywhere, but a cold winter in Norway is a lot more energy demand than a cold winter in Spain, relatively speaking, just because of the temperature. So I think that will depend and we're not necessarily in that same climate situation. So I think that price will definitely be dictating things a lot on the residential side. And then of course we also, on the industrial side, it depends on, the north of Italy is much more industrial. Germany is much more industrial. That France, there. Already last year, in the fourth quarter, we saw that, some manufacturing in France was suffering and having to turn things down. So it also depends where that industry can give way.

Richard Sverrisson, Editor-in-Chief, Montel: 21:21

Absolutely. So what does that, what's the implication of that though, for the wholesale energy market? Nadia, is it, would it be like a temporary lifting or temporary, sorry, suspension of the market and where regulators and ministries step in.

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 21:34

I am a stronger believer in price having things work out much faster than regulation. So we saw, for example, this summer, Belgium said, okay, everyone needs to cut down their own personal energy use. That has not resulted in the kind of a drop that we've seen in industrial use of natural gas because of prices, right? So I think that price will make those changes. More quickly than than the regulators can actually move.

Richard Sverrisson, Editor-in-Chief, Montel: 22:07

What other options are on the table? So we've got rushing, have we got, are we got, potentially rolling blackouts? Nadia mentioned industrial companies re tendering some of their volumes. What are what tools to. Do the policy makers have at their disposal leon?

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 22:22

Obviously the topics that, that Nadia mentioned are highly relevant, particularly also with Germany aiming to roll out those auctions for industrials to actually be able to sell gas back into the market. But other than that what we are. Primarily conceiving as the last levers for the European market. Bar rationing are essentially three. The first one is a delay in pushback of the German nuclear exit by the end of this year. What this means, however, is that in the very short term, and particularly over the course of this winter, it will probably not help to displace significant amounts of gas from the power sector simply because we are already looking at nukes, which are running on relatively heavily depleted fuel rods. And as per. The German technical Inspection Association and also the German Ministry of the economy, it will need roughly 12 to 15 months until new fuel rods are actually in place in order to ramp up ramp up power output from from German nukes again. But if that were to happen, what we are looking at is, potentially in, in Q4 23, a power sector gas demand displacement of up to 0.6 BCM a month. That would actually help to ease the balance going forward. And then in the immediate short term, what we're looking at is a ramp up in, in groaning in production. Which could help to alleviate some of the tightness in in Europe by essentially backing out HGA into the German balance. The problem with that is that a obviously it's very politically contested and secondly what we are, also looking at our potential congestion issues until we have LNG terminals in Germany in place, simply because we're already looking at relatively high utilizations of for example, flows from Belgium into Germany and even flows from the Netherlands into Germany. Which means that there might be a limitation to how much grooming in could actually ramp up. Versus its technical capacity in doing so. And secondly, and that's also something that that Nadia mentioned, it is the gas to liquid switch in Europe. We are already seeing some industrials preparing for such an eventuality in which they would switch from gas to, for example, diesel in order to power on onsite power generation or to use for onsite heat generation. But what we're also looking at, particularly in Western Europe's power generation sector, is that we are only looking at now eight gigs of actual oil fired capacity. That that could be used in such an eventuality and a lot of that. Is actually smaller generation capacity that is used mostly for emergency generators or for peak load power supply, which means that they cannot run base load. So what we are looking at internally is that, a maximum of around 10 to 15 MCMA day. Of Western European power sector gas demand could actually be replaced by a switch to diesel, which would correspond together with industrial switching, which we were pegging at around 70 KBD to around, a hundred and 160 thousand barrels a day of potential incremental oil demand. But. It is just not enough to really significantly ease the tightness on the European balance if there was going to be a significant deterioration in the supply side, which means that in the short term the best lever and the most extensive lever that European policy makers have at their disposal to actually balance the market is rationing.

Richard Sverrisson, Editor-in-Chief, Montel: 25:38

Okay. That's it's there are no quick fixes here. Are there nadie? You said you highlighted. Asia being ahead in terms of, switching to more from gas to liquid and also in terms of nuclear generation. What in terms, especially when I hear that diesel generators are being fired up that, that has a lot of sort of environmental consequences. But

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 25:57

I would also add on that, we're at a competitive disadvantage because as what Leon pointed out, we're looking at diesel switching in Europe. Whereas in Asia, they can run on fuel oil. Fuel oil is way cheaper, less environmentally friendly. Absolutely. But in this clutch situation, it hits our balance our pockets much more when we're doing that on the diesel side.

Richard Sverrisson, Editor-in-Chief, Montel: 26:23

Yeah, absolutely. I'd just like to round off this fascinating discussion about the options ahead of us by looking, by asking you, are there any bright spots out there? Are there any positives or any sort of bearish signals here going forward? Or is, does it, are the arrows all pointing up?

Nadia Martin Wiggen, Partner and Analyst, Pareto Securities: 26:38

First positive, I would say is that we are seeing a real shift in the energy balance and rethinking about things. So I think that if we think about how. Germany has historically, recently made decisions. About energy, it's been a hundred percent based on cost, right? And so that is why also as Leon points out, the nuclear delay of the nuclear exit or nuclear switching back is really their last option because it's so expensive versus other options and. It's actually cheaper to build the new nuclear power plant than it is to actually restart some of the ones that they have shut down. If we're talking about new plants, like what we're talking about in the UK and France, right? So I think that we are seeing a shift. How governments think about energy and energy security so that it will be more inclusive. I think that when we look in the winter, if I leased off my bearish price catalyst from here versus bullish price catalyst, I would say, see the bear side has more factors, right? Because right now we're building European storage every day. So storage is going up ahead of winter, right? We have volumes on Nord Stream one that are so low already that we're basically at almost zero in terms of pricing. And we agree with Leon that we're probably gonna see more volumes going forward, so that should alleviate pricing. We see very strong LNG import volumes right now despite the outage in Freeport. Despite, demand coming back as we've already seen in South Korea and Japan we see that European natural demand, natural gas demand is actually down 20% year on year and Europe hasn't collapsed. Of course, we're going into the high demand season, but that's something that, we've already seen some. Rationing and are these tenders gonna come into place maybe in Germany maybe this allowance. That would absolutely be bearish for natural gas prices if they, we could have this reoffering from industry in the market. On the bullish side, we're really looking at an LNG shock, right? And that is by. China really massively ramping up buying and that can happen I think once Xi is reelected officially, which is expected by year end. So there's zero COVID policy that in our view could impact demand by as much LNG demand by as much as 15% in China in the fourth quarter. Know that could come back if and really raise demand definitely in the first quarter, right? So that is something, a lot of people have been on the wrong side of that trade so far because she has persisted in the zero COVID policy. And then of course are, could we have another shock outage like. Freeport in the us that's not a normal likely occurrence, but of course when we are working at peak capacities everywhere, we will have higher outages than before. But I would still say in terms of number of factors, you have more bearish catalysts out there right now than bullish ones.

Richard Sverrisson, Editor-in-Chief, Montel: 29:48

Yep. Thanks, Nadia. What's your view, Leon? What are the positives out there?

Leon Izbicki, Associate, Natural Gas, Energy Aspects: 29:52

Like in, in terms of what we are seeing in the market, right? Is that we. We are already able to identify as Nadia has said as well, a lot of price sensitivity among industrials and also among the recom sector. Where we are looking at in industrial gas amount over the course of this winter based on our models being, around eight BCM lower year on year. Largely due to of course on the one hand a bit of temperature normalization, but also due to the impact that we are seeing that prices are having on industrials. And overall, when we look at this calendar year actually and when we compare, where exactly industrial gas demand is and is expected to be over the rest of the year versus where it would have been if the TTF would've been in its usual trading range below 40 euros a megawatt hour. We are seeing around, 15 to 17 BCM of industrial demand being shaved off as the result of high prices. So this means that the market, is able to, or was able to find a balancing mechanism that is purely price driven above the traditional one, which is the coal to gas fuel switch. Whereby we are looking at, price increases that are sufficient and able to actually price of industrial demand. And based on what we are seeing, the overall impact of high prices particularly in Germany. On industrial demand is also amplified over time, which means that we will probably see the sustained high prices over the last, year essentially. Really feeding in and maximizing the amount of reductions among European industrials and German industrials, probably by Q1 or even Q2 of next year. So it's an ongoing process where we're seeing an amplification of the price sensitivity, which will help the European market balance, and that's also something that we are expecting in the SCOM sector. So all of this means that when it comes to demand. There, there is the potential for significant price-driven reductions which might help to ease the balance over the course of this winter and also over the course of next year. But that said, there is still. Quite a bit of supply side risk, and it's very difficult to actually in the current environment with the current in tensions between Russia and Europe to really go short in, in such a market, simply because if we are looking at a further reduction in Russian flows, we are looking at still, price jumps of around 15, 20 euros, a megawatt hour being needed over the course of winter in order to liberate roughly just one BCM of demand from the industrial sector. And if we're applying the same thing we're, we might be liberating another one BCM from the recom sector, but it still means that large price increments are actually needed to try and counteract any BCM in on loss on the supply side with a reduction on the demand side. So while on, on the base case, current prices are definitely sufficient to reach and to get through winter and to reach also for next year a an adequate end October carryout target. It is very difficult in the current environment to actually go bearish and be bearish against the market.

Richard Sverrisson, Editor-in-Chief, Montel: 32:56

Leon and Nadia, thank you very much for joining the Montel Weekly podcast. So listeners, you can now follow the podcast on our own Twitter accounts. Aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye.