European natural gas prices fall amid high storage levels and warm weather

Concerns are growing about the continent's ability to meet 2023 demand as Russian supplies dwindle

A natural gas processing plant in Norway. The country has emerged as the EU's single-biggest gas supplier. Photo: NTB

European natural gas prices are down, with the warm weather and higher-than-expected gas storage levels easing concerns over winter shortages.

Dutch TTF gas futures, the benchmark European contract, was last trading at €107.38 ($106.79) a megawatt hour, down 5.4 per cent compared with last Friday.

European gas futures dropped as low as €93.35 per MWh at the start of this week, the lowest they have been since mid-June.

“The decline is thanks to Europe’s storage facilities now being at high levels, above-normal forecast temperatures for the upcoming European winter, [and] high output from wind power,” Rystad Energy analyst Nikoline Bromander said in a research note.

Europe’s gas storage levels have crossed the 90 per cent mark before the start of winter as countries switch from gas to using coal or oil to fire up their power plants and keep industries running, as well as increase their liquefied natural gas (LNG) imports.

The storage levels of Germany, which has the largest storage centres in the EU, were at 96 per cent, exceeding its target of hitting 95 per cent by November 1.

The UK’s storage is full while Austria and Hungary have exceeded the EU’s target of 80 per cent by November.

“Europe has enough gas stored to survive this winter unless it gets very, very cold … but the continent is not out of the woods yet,” Ms Bromander said.

Analysts have said the real test will be refilling storage next year as Russian supplies continue to dwindle.

LNG imports, a big part of Europe’s plan to replace Russian gas, have been put at risk by rising Asian demand and a lack of regasification facilities in Europe.

The benchmark Japan-Korea-Marker (JKM) price for LNG has fallen to about $31 per million British thermal units (mmBtu) but is still tracking Europe’s TTF price, “tempting some Asian buyers back into the market”, said Rystad.

“The weather will be a strong driver for the rate of withdrawal from storage this winter,” Ms Bromander said.

The current forecasts suggest that Europe “will have milder-than-normal temperatures this winter, which is positive news for Europe’s gas balance”, she said.

After months of high natural gas prices, the EU is considering whether to cap gas prices. However, Brussels has yet to table a formal proposal.

Although Norway has emerged as the EU’s biggest gas supplier, representing about 25 per cent of its overall imports, Spain and Portugal could be a part of the solution to Europe’s long-term energy headaches.

With low electricity prices and several renewable energy projects in the pipeline, Iberian Peninsula countries “have the potential to evolve into a new European energy powerhouse”, Rystad said in a separate research note.

“Through a combination of investment, geography and policy, Spain and Portugal have managed to avoid or reduce the impact of the European energy crisis,” said Carlos Diaz, head of power at Rystad Energy.

Spain became Europe’s third-largest power exporter in the first three quarters of 2022, behind only Sweden and Germany.

The country, which aims to generate 74 per cent of its electricity from renewable sources by 2030, is the second-largest generator of renewable power in Europe.

The global energy crisis triggered by Russia’s invasion of Ukraine could “hasten” the transition to renewable energy, the International Energy Agency said in its World Energy Outlook on Thursday.

The agency's stated policies scenario (Steps), which is based on the latest policy settings worldwide, expects clean energy investment to rise to slightly more than $2 trillion by 2030.