Natural Gas: New Price Decline – Market Optimism

Crowded warehouses and the return of pleasant weather lower taxes for the gas market’s price explosion.

At least as far as the gas market is concerned, worries over the start of severe weather in Europe did not linger long. Prices are once again falling as overstocked warehouses and the return of better weather allay concerns about the impact of the energy crisis on the continent.

Benchmark futures on the London market (TTF) dropped as much as 4.8% to 55 euros per megawatt hour, and experts predict that prices will continue to decline over the next several days. Since the beginning of the year, the contract has lost around 31%, while the UK counterpart decreased by 0.7%.

The Influence Of “Excellent Weather”

In the next few days, demand is anticipated to decline once again as temperatures are anticipated to rise. In addition, additional liquefied natural gas is anticipated as measures are taken to reopen a major U.S. export facility.

Strong LNG imports and full gas storages, which are slightly above average due to decreased use and a mild winter, have helped to drastically lower fuel costs lately.

The most gas-consuming nations in Europe are expected to see an increase in temperature over the next several days, according to weather predictions. After this chilly snap, northwest Europe will see mild weather the following week. The hottest weather is expected to last at least until the first week of February, according to predictions.

Stocks

Furthermore, the EU’s gas reserves, which are at 77% throughout the EU and far higher than the five-year average for the winter heating season, are still extraordinarily high for this time of year. Given that the majority of gas imports via the Russian pipeline have been suspended, the high amounts of natural gas in storage and the ongoing inflow of LNG shipments relieve supply worries.

Regarding the oil issue, Deutsche Bank analysts emphasise, “We can be more hopeful.” “Gas prices decreased as gas storage increased. Both inflation and uncertainty are declining “they include

Data from the Ifo Institute show that the economic outlook for Germany, the biggest economy in Europe, has improved significantly as the likelihood of a recession, which many people feared, is decreasing. According to Ifo president Clemens Fust, a gas curtailment scenario posed the greatest danger to the German economy on Wednesday. “That danger is no longer an option.”

Although further work is anticipated at Norway’s facilities this month, pipeline supplies from that nation are rising following a drop associated with maintenance operations.

Despite this, traders continue to pay attention to the demand uncertainties in China. According to Meg O’Neill, chief executive of Woodside Energy Group Ltd., Australia’s biggest exporter, the market may remain tight this year despite the nation’s economic rebound.

Although there are still dangers, Deutsche Bank predicts that prices in Europe will stay between 50 and 100 euros this year. Although it is still higher than usual, this is a dramatic decline from last year’s heights.

The Enormous Expense

To get to the present situation, however, European nations have paid a hefty price: approximately EUR 1 trillion has been spent by European governments on energy supply subsidies.

Despite this, gas and electricity costs are still much higher than they were before the crisis.

Retail energy costs won’t start to decline until the second half of the year, and there’s still no sign that we’ll be going back to the pricing from before 2022 any time soon.

For instance, the consulting company Cornwall Insight forecasts that the typical UK family’s annual gas and electricity cost would be over £2,800 in the second half of 2023, up from less than £1,500 in the four years before 2021.

How We Transitioned From A Crisis To Calm

But how, in only six months, did Europe move from utter calamity to relative calm? First off, it can’t be overstated how fortunate the neighbourhood has been throughout the years.

New Year’s Eve’s springtime temperatures were joyfully welcomed by everyone who is concerned about their power bill, but they are not as welcome for those who are concerned about the environment.

The main gas-consuming area of northwest Europe had 29 days in a row with temperatures above average from December 19 to January 16. This was in addition to the 37 days in a row of mild weather that occurred from mid-October to mid-November. Winter so far has been roughly 12% warmer than the 30-year norm when heating degree-days (HDDs), a measurement of energy use relative to typical local temperatures, are taken into consideration. This has a significant impact on how much gas is used.

Warehouses That Are Packed

Due to the sudden decline in demand, Europe’s gas supplies have not run out as soon as was anticipated. Storage tanks are now 77% filled, which is higher than the 62% five-year average for mid-January. Even a winter like 2013–14, when Europe significantly reduced its stores in the second part of the season, would only bring down European levels to around 45% by early April. This is far higher than the 33% five-year average.

European utilities and governments won’t need to purchase as much gas in the spring and summer to be ready for the 2023–24 season since there is more gas in reserves today. The next winter starts off more slowly the sooner this one finishes. Even a winter like 2013–14, when Europe significantly reduced its stores in the second part of the season, would only bring down European levels to around 45% by early April. That is much over the panic level and the five-year average of 33%. European utilities and governments won’t need to purchase as much gas in the spring and summer to be ready for the 2023–24 season since there is more gas in reserves today. The next winter starts off more slowly the sooner this one finishes.

‘Irrational’ Stock Price Rise

According to John Kemp of Reuters, the winter was so mild that there was an unjustified rise in gas storage, and another element that contributed to this “irrational increase” was the decline in industrial gas demand. The only way industrial consumers can cut down on their consumption is by reducing the scope of their operations.

This is the “bad side,” according to Oilprice.com, of the good news that beautiful weather delivers. It also notes that some experts seem to be oblivious to the fact that the 20.1% decline in gas use throughout the bloc was mostly brought on by sky-high gas prices impacting consumption.

A Decrease Yet Still Significant Amounts

Additionally, even if gas prices have decreased since their high last summer, they are still far from where they were in 2019. Nearly 70 euros per megawatt hour, or roughly five times more than in 2019, were the European gas benchmark costs, according to Politico in a recent piece on gas demand and pricing in Europe.

He continues, “The issue that European politicians do not want to speak about is that these costs are not going to decline much as long as the EU depends on LNG for the really straightforward reason that LNG could never be as cheap as pipeline gas.”

The EU will continue to depend on LNG out of both need and choice since gas supplies via Russian pipelines, including Nord Stream 1, are not likely to resume any time soon.

Worries About The Summer

Additionally, as retail energy providers purchase their gas on the wholesale market months in advance, if wholesale prices in the TTF market decline, retail prices will also decline when they cover wholesale prices, and winter conditions may modestly persist. But that would likely also bring about a scorching, dry summer. Additionally, this would result in a rise in the need for energy for cooling.

Even with gas left over from the previous heating season, this prospective extra summer energy demand might make it more challenging for European nations to hurry to fill their gas storages, even if it is unlikely to surpass regular winter demand.