Europe currently has more natural gas than it needs, writes CNN. So much so that spot prices were briefly negative earlier this week.
For months, officials have warned of an energy crisis this winter as Russia – once the region’s biggest supplier of natural gas – slashed supplies in retaliation for sanctions imposed following its invasion of Ukraine .
Now gas storage facilities in the EU are almost full, ships carrying liquefied natural gas (LNG) are queuing in ports unable to unload their cargoes and prices are falling.
The price of benchmark European natural gas futures has fallen 20% since last Thursday and more than 70% since its record high in late August. Spot Dutch gas prices for one-hour delivery – which reflect real-time European market conditions – fell below €0 on Monday, according to data from the Intercontinental Exchange.
Oversupplied network
Prices turned negative because of an “oversupplied network,” Tomas Marzec-Manser, head of gas analysis at Independent Commodity Intelligence Services (ICIS), told CNN Business.
It’s an extremely surprising turn for Europe, where households and businesses have been hit by staggering gas price hikes over the past year.
The unusually mild weather is largely responsible for the dramatic change, says Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie.
“In countries like Italy, Spain, France, we’re seeing temperatures and gas consumption closer to August and early September levels,” he told CNN Business. “Even in the Nordic countries, the UK and Germany, consumption is well below average for this time of year,” he added.
The European Union has also built substantial stocks against any further supply cuts, filling gas storage facilities close to capacity. Currently, storage facilities are almost 94% full, according to data provided by Gas Infrastructure Europe. This percentage is well above the 80% target that the EU bloc set for November.
“It’s an extremely high level,” said Di Odoardo, noting that peak storage levels have averaged 87 percent of capacity over the past five years.
Queues of natural gas ships in European ports
Europe’s efforts to secure as much fuel as possible before winter has led to an increase in the number of natural gas ships waiting to enter European ports. Felix Booth, head of LNG at data firm Vortexa, told CNN Business that up to 35 ships are either sitting near ports in northwest Europe and the Iberian Peninsula, or sailing very slowly to them due to a lack of storage options.
Those ships “will probably need another month to unload the cargo,” he said. Together, they carry about $2 billion worth of LNG, according to Kpler, citing energy market data provider Argus Media.
Despite the recent drop to around 100 euros ($100) per megawatt hour, European natural gas futures are still 126% above their levels from last October, when economies began to reopen from pandemic shutdowns and demand it exploded.
Prices may rise sharply from December
Prices could rise sharply again in December and January as the weather cools, providing an incentive for some of these tankers to wait a little longer offshore before entering port, Booth said.
And despite Russia’s share of total gas imports from Europe falling from 40% to just 9%, the region could be in for a tough spot next summer as it tries to replenish stocks ahead of next winter .
Prices are expected to reach 150 euros ($150) per megawatt hour by the end of 2023, said Bill Weatherburn, commodities economist at Capital Economics.
