Natural gas in Europe fell below €100 per megawatt-hour for the first time since June as unseasonably warm weather and ample supplies ease fears of shortages this winter.
Benchmark futures fell as much as 18% and are about 70% below August highs. High temperatures are expected to hold into next month, delaying the heating season and allowing storage sites to continue to fill. Fuller-than-usual reserves would provide the necessary buffer for when the weather inevitably turns cold.
Better conditions are easing some of the pressure on Europe’s politicians, with the energy crisis helping to push the economy to the brink of recession and inflation to the highest level in decades. Despite the recent drop, prices are still about three times higher than the five-year average for the time of year, and the cold snap could quickly renew supply concerns.
“Europe is now in a comfortable place with regard to supplies,” said Graham Freedman, an analyst at consultancy Wood Mackenzie. “The risks of blackouts and rationing are receding. But the real test will be when we get cold weather.”
European Union leaders agreed last week to back urgent measures, including support for a cap on the price of gas in electricity generation and measures to prevent extreme peaks. The bloc’s energy ministers will meet this week to further discuss the details.
There are growing calls from member states for more action to protect the economy from high costs, even as the International Monetary Fund warned over the weekend of a “toxic mixture” of rapid inflation and declining growth in the region.
Dutch gas futures for the previous month, the European benchmark, were down 14% at €97.25 a megawatt-hour at 3:38 pm in Amsterdam. The previous month’s UK gas contract fell 14%, while German electric power for next year fell as much as 4.5%.
High levels of storage and imports to replace some of the lost Russian supplies will likely be enough to “navigate a normal winter,” Patricia Alvarez, an analyst at Bloomberg Intelligence, wrote in a note. “But curbing demand remains key to mitigating the impact of further gas cuts in Russia.”
Pipeline shipments from Moscow have plummeted to nearly 20% of what they used to be before the war in Ukraine and subsequent sanctions on Russia. The loss of those volumes would make it difficult for Europe to replenish crucial stocks at the end of winter, which could make it difficult next year as well.
But German Economics Minister Robert Habeck told Handelsblatt that the country would be in a much better position next winter than this one as more LNG comes in. Supplies from places like Norway and the Netherlands should account for about a third of the flows lost from the lockdown. Nord Stream 1 pipeline carrying Russian gas.
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