European gas prices drop amid warmer weather forecast

Countries have boosted their imports of liquefied natural gas

Germany's first LNG terminal in Wilhelmshaven. Europe has boosted its LNG imports from the US and Gulf countries amid falling Russian gas exports. Reuters

Forecasts of above-normal temperatures and rising reliance on gas from storage are driving European gas prices lower.

Dutch TTF gas futures, the benchmark European contract, was last trading at €97.75 ($104.08) per megawatt hour on Wednesday, down 25 per cent compared with a week ago.

European gas prices hit a record high of about €343 per megawatt hour in August after Russia reduced gas deliveries to the continent in response to wide-ranging economic sanctions following its invasion of Ukraine.

“Current weather forecasts indicate that temperatures in Europe will be above normal towards year-end, likely lowering prices further,” Rystad Energy said.

Gas continues to be withdrawn from Europe’s underground storage, with facilities 86 per cent full at roughly 94 billion cubic metres (bcm), the energy consultancy said.

As Europe looks to replace Russian gas, countries in the region have boosted their imports of liquefied natural gas (LNG) from the US and Gulf countries.

The continent imported more than 11.4 million tonnes of LNG in November, a record for the year, Rystad said earlier this month.

France, Spain and the UK combined accounted for more than half of Europe’s total imports.

The US became Europe’s largest source of LNG last year, representing 26 per cent of all LNG imported by EU member countries and the UK, followed by Qatar with 24 per cent, and Russia with 20 per cent, the US Energy Information Administration said.

EU energy ministers on Monday approved an emergency cap on gas prices, which, from February 15, would be triggered if benchmark gas prices rose to €180 per megawatt hour for three working days in a row.

The spread between prices on the Dutch Title Transfer Facility hub and global LNG prices also needs to reach €35 over the same period of time for the cap to be implemented. Once activated, it would remain in force for at least 20 working days.

The cap, roughly €83 per megawatt hour higher than current gas prices, is “unlikely” to be triggered, but will protect European consumers from “extreme price spikes” seen earlier this year, Rystad said.

“We do not believe it will reduce supply or worsen Europe’s gas deficit … we also believe it will continue incentivising gas exports to Europe at maximum levels,” it said.

The International Energy Agency has warned that 2023 may present a “sterner test” for EU countries as Russian gas exports dwindle and Chinese demand for LNG rises.

The EU could fall short by about 27 bcm of gas next year if Russian gas deliveries drop to zero and China’s LNG imports rebound to 2021 levels, the Paris-based agency said in a report this month.

The risk of shortages can be avoided through “stronger” efforts to improve energy efficiency, as well as use more renewable energy and further diversify natural gas sources, it said.