For months, officials have warned of an energy crisis that will hit this winter. These warnings come as the region’s largest natural gas supplier, Russia, has cut supply in response to sanctions imposed by Europe.
Now, Europe’s gas reserves are almost full. Ships carrying liquefied natural gas (LNG) are lining up at ports, cargo is not being unloaded and prices are falling.
European natural gas futures prices have fallen 20% since the middle of last week and more than 70% since hitting a record high in late August.
According to data from the Intercontinental Exchange, on the first day of the week, the one-hour spot Dutch gas price, which is used to reflect real-time European gas prices, fell below zero euros.
Photo: CNN
Tomas Marzec-Manser, head of gas analysis at the Independent Commodity Intelligence Service (ICIS), said that prices fell due to “oversupply”.
This is an extremely surprising situation for Europe, where households and businesses have been affected by soaring energy prices over the past year.
Warm weather saves Europe
Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, said the unusually warm weather was a big part of the luck.
“In countries like Italy, Spain, France, we see temperatures and gas consumption close to those of August and early September,” he said. Even in the Nordic countries, the UK and Germany, consumption is still well below the average for this time of year.”
The European Union (EU) is also building buffers to combat the drop in supply by filling up gas reserves. According to Gas Infrastructure Europe data, stockpiles are almost 94% full. This figure is much higher than the 80% target that the countries in the bloc set before November.
Mr. Di Odoardo considers that an extremely high level. He noted that the maximum reserve level over the past five years has averaged 87%.
Europe’s efforts to secure as much fuel before winter as possible have caused a backlog of LNG carriers at European ports. The EU has increased LNG imports from the US and Qatar as natural gas supplies from Russia have plummeted.
As many as 35 vessels are floating or moving very slowly toward ports in northwest Europe and the Iberian peninsula because of the lack of LNG import terminals, said Felix Booth, head of LNG at data firm Vortexa. Those ships could take another month, he said, before they get to the warehouse.
Next year prices may increase sharply
Despite the recent price drop of 100 euros/megawatt-hour, European natural gas futures are still 126% higher than October 2021. That’s when economies reopen later pandemic, causing demand to skyrocket.
Mr. Booth said that prices could increase sharply again in December and January, when the weather is colder. This motivates some offshore gas tankers to wait a little longer before entering port to unload.
As Russia’s share of Europe’s total gas imports has dropped from 40% to just 9%, Europe could be in trouble next summer, when countries try to stockpile for winter.
Commodity economist Bill Weatherburn at Capital Economics said gas prices are expected to hit 150 euros/megawatt-hour by the end of 2023. He said: “Filling stockpiles before next winter will force the EU to have to import more LNG, as the need to replace the shortfall of imported gas from Russia for the whole year.”
Source CNN
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