Natural gas is falling in price in Europe, despite the frosts coming from the Arctic

Gas in Europe has fallen in price for the second day in a row and has dropped to its lowest level since September, despite the frosts that came from the Arctic. Prices, supported by high reserves in underground gas storage facilities and stable supplies of pipeline gas and LNG, dropped to $350 per 1 thousand cubic meters. Even a slight increase in gas demand from utilities and power plants due to cold weather is not reflected in price dynamics.

Natural gas prices in Europe continue to decline for the second day in a row and have already reached their lowest levels since September 6. Thus, the spot price for gas with delivery one day ahead at the Dutch TTF hub on January 9 decreased by 3%, amounting to €30.7 per MWh, or about $350 per 1 thousand cubic meters, the February futures fell by 2%, to € 30.9 per MWh.

Prices in northwestern Europe continue to fall despite a new wave of cold weather hitting much of the continent, which could boost demand for heating and power generation. This weekend in Oslo the temperature dropped to minus 30°C, and temperatures also dropped in Berlin and Paris. Although Europe had a milder-than-usual winter, cold weather is expected in January, according to meteorologists interviewed by Bloomberg. “High-pressure weather typically means less wind,” the agency writes, noting that this will lead to lower output from wind farms. But milder temperatures are expected in February.

Wind output in Europe, which traditionally reduces gas demand, has actually declined in recent days, with wind’s share of electricity production falling to 18.7%, according to WindEurope. In December, the contribution of wind farms reached 24%.

Gas supplies to the EU via pipelines from Norway remain at a high level. The Dutch government said it was resuming minimal emergency production at the largely shuttered Groningen gas field due to extremely low temperatures. LNG terminals are also operating at a good pace, although their productivity at the beginning of the month was down slightly from its December peak of 56% to 46%.

The continent had a warm start to the winter and sluggish industrial demand for gas, but prices remained volatile as tensions escalated in the Middle East, fueling market concerns about the stability of supplies across the Red Sea. Important routes for the supply of Qatari LNG to Europe pass through the region.

However, stock levels in EU gas storage remain high at around 84.27% as of January 7, 13 percentage points higher than the average over the past five years. But the rate of withdrawal from underground gas storage facilities over the last gas day has accelerated to approximately 500 million cubic meters compared to 350 million cubic meters the day before, according to GIE data. At the same time, even with the current rate of withdrawals, the EU will emerge from winter with reserves of over 50%.

According to Sergei Kondratiev from the Institute of Energy and Finance, due to a 3.1°C decrease in temperature compared to last year, gas demand in the Netherlands increased by more than 40% year-on-year in the first week of January, mainly due to increased consumption in the electric power industry (twice) and from the population (1.6 times). But this situation does not exist everywhere – in Italy, where the average temperature in early January was also lower (by 1.3°C), demand for gas in the electricity sector fell by 1% year-on-year, and the overall increase in demand turned out to be much more modest. However, it pushed February TTF futures 13% higher through January 8th.

Now prices have begun to decline again – due to warming expected in the coming days, says Sergei Kondratyev. Which, together with maintaining high supply and reducing geopolitical risks, will put pressure on prices. “In my opinion, weak demand and high inventories are now more important than temperature fluctuations, and if consumption remains low, we can see TTF prices stabilize at $300–330 per 1 thousand cubic meters,” says Mr. Kondratiev.

Tatiana Dyatel