Similar to 2023, natural gas market conditions in the first quarter of 2024 are favorable for natural gas consumers. Despite natural gas price increases in November and December 2023 due to geopolitical events in the Middle East, natural gas prices continued to decline in the first quarter of 2024, reaching their lowest point since June 2021 in March. The decline in natural gas prices is mainly due to warmer than usual weather in Europe during the heating season and high fulfillment levels of natural gas storage. After reaching their lowest point in March, natural gas prices increased slightly in April and May. This was mainly due to the start of the natural gas injection season in European natural gas storage from April 1, which resulted in European natural gas traders having to compete with Asian traders for liquefied natural gas supplies. Natural gas prices were also affected by planned and unplanned natural gas supply disruptions from Norway, which has become Europe's largest natural gas supplier since the outbreak of the Ukrainian war.
The main challenges for natural gas traders, including ours, are the still low consumption of natural gas compared to the pre-war period, the increasingly expensive use of natural gas storage, as well as economic and political events in Europe and the world. Despite the decline in natural gas prices, consumers still continue to conserve natural gas, which indicates that consumer habits have not changed significantly due to the sharp increase in natural gas prices in 2022. In addition, although there is a tendency for natural gas consumption to increase in certain industrial sectors, such as fertilizer production, the overall weakness of economic activity in the euro area makes it unlikely that natural gas consumption will increase in the short term and return to pre-war levels. Natural gas consumption is also affected by the ever-increasing production capacity of renewable energy resources and the commitment at the European Union level to voluntarily reduce natural gas consumption by 15% by March 31, 2025. Latvia's natural gas supply, although it does not have a direct technical connection with Western Europe, is directly dependent on economic and political events in the Baltic countries, as well as in Europe and the world, since natural gas prices in Latvia are linked to the Western European Natural Gas Hub Index. Due to the decline in natural gas prices, the price difference between summer and winter is becoming smaller and smaller, but at the same time, the cost of using natural gas storage is increasing every year. For example, the rate for stock transfer products will increase by 2.4 times during the storage cycle from May 1, 2024 to April 30, 2025. In order to ensure the safety and stability of natural gas supplies to customers and to meet the conditions of European Union Council Regulation (EU) 2022/1032 on the performance level of natural gas storage facilities by November 1 of a particular year, natural gas traders, including the Company, inject natural gas into storage facilities in the summer so that it can be delivered to customers during the heating season. This situation poses a major challenge for natural gas traders to continue to provide customers with favorable natural gas prices while at the same time compensating for the rising storage costs.
In this market environment, our many years of experience and knowledge of the Latvian and European natural gas markets play an important role. As a result, despite all the difficulties, the company achieved a solid profit in the first quarter of 2024. In the first quarter of 2024, the company achieved a net profit of EUR 8.7 million, which is a 25% increase compared to the same period in 2023, when the net profit was EUR 7 million.
The Company continues to engage in discussions with responsible authorities in the energy sector regarding compensation for losses incurred by the performance of obligations set out in Ministerial Regulation No. 503 “On supplies to energy users during early warning and alert level declarations” as well as losses arising from the difference between the tariff and actual price of natural gas for the most recent regulated tariff period from January to April 2023 prior to the opening of the natural gas market from May 1, 2023 when the Company performed its obligations as a public trader under the “Amendment of Energy Laws” Act.
The Company plans to issue its unaudited interim condensed financial statements for the six months of fiscal 2024 on August 30, 2024.
JSC “Latvian Gaze”
Board chairman
Aigalus Calvitis
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