Natural gas prices in Europe hit its lowest level since November 2021 in the past week. Even with the slight rebound, it is still 80% below its all-time high in August 2022. As at the time of writing, the continent’s benchmark – Dutch TTF futures – were down by 5.69% at 70.07 euros per megawatt-hour (MWh). Low demand and a surge in supply are largely behind the plunge.
What’s driving the market?
Natural gas prices in Europe rallied to its all-time high in late August 2022. Efforts by the region’s administrations to build inventories ahead of the winter season, at a time when the market was experiencing tight supply, was largely behind the surge. Notably, some analysts forecast that the prices would rise even further during the winter season as demand for heating was set to skyrocket.
Fast forward to the Northern Hemisphere’s winter season and Europe’s benchmark for natural gas prices – Dutch TTF futures – have dropped by close to 80% in a span of five months. Higher-than-expected temperatures and ample supply are largely behind the recorded plunge.
In the months leading up to the winter season, the continent was keen on building up on its inventory. Indeed, at its current level, the region’s storage facilities are 83% full. The figure, which has been released by Gas Infrastructure Europe, is significantly higher than the five-year average of 69% .
On the demand side, a warmer-than-usual winter has further eased supply concerns; an aspect that has led to the decline in natural gas prices. For instance, Hungary recorded in warmest Christmas Eve with temperatures rising to 18.9 degrees Celsius on 1st January. Other countries including Spain, Switzerland, and Poland have also been experiencing a warmer winter.
Notably, reduced industrial consumption is also at play. In the past year, fears of natural gas shortage saw the EU call for a voluntary 15% reduction target. Subsequently, industrial demand dropped by about 20% in the second half of 2022.
However, even with these bearish factors, natural gas prices in Europe may surge in coming months. To begin with, China’s reopening will likely be one of the major bullish drivers. Besides, as stated by Gazprom, the daily deliveries of Russian gas to Europe through Ukraine was at 35.5 million cubic meters. In comparison, it was at over 40 million cubic meters in recent months. The significant decline may soon impact natural gas supply in the continent.