European natural gas prices have fallen to levels last recorded before Russia’s full-scale invasion of Ukraine in February, as warmer weather helps the continent to preserve its reserves.
The Dutch TTF gas future for the coming month, the benchmark European contract, dropped as much as 7.4 per cent on Wednesday to €76.78 per megawatt hour — its lowest level in 10 months, according to data from Refinitiv. That price was last logged just before Russia launched its attack on Ukraine.
However, the price later rebounded to trade 2.8 per cent down on the day, at €80.55.
Moscow’s weaponisation of the commodities it sells Europe, combined with record-breaking temperatures, helped push gas prices to more than €300 per megawatt hour over the summer. In an effort to stem rising prices, the EU has implemented a series of measures including mandatory gas storage and consumption reduction targets.
The latest fall comes after warmer than usual temperatures across north-west Europe, which are expected to linger into the new year. As the warm weather reduces heating demand, Europe has been able to build up its gas inventory again after drawdowns from mid-November, including during the cold snaps in the early weeks of December.
Since Christmas Eve Europe has been sending more gas into its storage facilities than it has taken out of them. Capacity stood at 83.2 per cent full as of Monday, down from the mid-November high of 95.6 per cent, according to industry body Gas Infrastructure Europe.
The current level is 30 per cent higher than the same period last year, when Europe had unusually low levels of storage, and about 10 per cent higher than the average of the previous five years.
Reduced demand for gas has also helped inventories, with the region cutting its requirements by about a quarter compared with the five-year average in November, following a similar fall in October.
Analysts warn that Europe will be in a difficult position when trying to restock its gas inventory next year, when the volume of gas supplied from Russian pipelines will be considerably lower and the liquefied natural gas market, which the region has depended on this year, remains tight.
“We believe 2023 will be a tough year for the European natural gas market. It is unlikely the region will be able to build storage at the same pace as seen in 2022,” said Ewa Manthey, commodities analyst at ING, in a recent note.
“Demand destruction will need to continue to ensure adequate supply for the 2023/24 winter. In order to see this demand destruction, prices will have to remain at elevated levels. We forecast TTF to average €175/MWh over 2023,” she said.
European countries have been working on a package of measures to prevent energy prices spiking as they did in the summer. Before Christmas EU ministers reached an agreement to cap gas prices in the bloc when they hit €180 per megawatt hour for three days and sit at €35/MWh or more above global LNG prices.