Mild autumn weather has sent European gas prices plummeting

Ever since Russia tightened the valves on natural-gas shipments to Europe, markets have feared that the continent could suffer an energy shortage this winter. Yet western Europe now has so much gas that last month the price briefly went negative. Although the recent price crash does not offer full protection against an energy crunch, it does make calamity less likely.

Before Russia invaded Ukraine, it provided close to 40% of Europe’s gas. After it said it would cut off gas to the Nord Stream 1 pipeline in August, the benchmark ttf price soared above €300 ($305) per mwh, 13 times the average in 2018-21. Facing uncertain supplies, the eu set a target for members to fill 80% of their gas storage by November 1st. Many countries replaced piped Russian imports with liquefied natural gas (lng). Germany, which had no regasification facilities, started building terminals and bought whatever gas was available.

By mid-autumn, weather in much of Europe is usually chilly enough for consumers to turn on the heat. This year, however, has been remarkably balmy: all six of the continent’s biggest economies enjoyed the warmest October in at least a decade. As a result, the eu has blown past its storage target, with stores now 95% full on average.

A few eastern European countries still have storage available. However, most of the continent’s lng ports are in western Europe. With nearby storage sites full, lng tankers have had nowhere to unload. According to icis, a consultancy, around 30 are marooned in European waters. With lng ships charging a record $400,000 a day, traders have been willing to pay for someone to take gas off their hands, pushing prices below zero at one point.

Winter is still coming, and the glut is unlikely to last. Gas costs €35 per mwh for delivery today, but €110 for a guaranteed shipment in December and €142 for one in February, once heaters turn on.

Yet even €142 represents a decline from the €232 traders charged in August for deliveries in February. With the eu’s 1,000 twh of storage—enough for roughly seven weeks of winter—nearly full, policymakers are now focusing on replenishing stores ahead of the winter of 2023-24. Although Europe managed to fill them up once, similar supply may not be available next year at any price. In a long energy war with Russia, this winter is just the first round.■

Chart sources: EIU; ENTSOG; EU Copernicus; Refinitiv Datastream; The Economist