Why are European Gas Prices Falling?

(CTN News) – Over the last several months, European benchmark gas prices have been progressively falling toward their pre-Ukraine conflict levels.

Due to Russia cutting gas shipments after the West implemented sanctions in reaction to its invasion of Ukraine in late February, Europe has been experiencing an energy shortage this year.

WHY ARE GAS PRICES CURRENTLY DROPPING?

Dutch front-month gas, the European benchmark, has dropped 67% from reaching an all-time high in August to approximately 100 euros per megawatt hour and is at the lowest cost since mid-June despite decreasing Russian gas pipeline supplies.

GAS Prices increases from this time last year are 12.6%.

Even though the winter gas season started in early October, when demand for heating generally increases, Europe has had warmer weather than normal for the time of year, which has helped to reduce demand.

In addition, the whole European Union exceeded its goal of filling gas storage facilities to 80% capacity by November 1st. According to statistics from Gas Infrastructure Europe, storage facilities are presently 93% filled compared to 77% at the same time last year.

Both the Norwegian pipeline supply and the supply of liquefied natural gas (LNG) have proven robust.

By the end of last week, 2.81 million tonnes of LNG had been imported into Europe, according to Nikoline Bromander, an analyst at the Rystad Energy consulting firm.

Additionally, there has been a significant increase in wind energy generation, which lowers the need for gas from power plants. The EU’s decision to work together to reduce costs and consumption has also helped.

Analysts claim that the European Union’s debates regarding a GAS pricesN ceiling for the whole EU and restricting intraday price swings have placed pressure on prices. These discussions are intended to reduce the cost of gasoline.

WILL CHEAPER PRICES CONTINUE?

The effects of the weather and demand are important factors. For the next two weeks, forecasts indicate that Europe will continue to see warmer weather. The pace of withdrawals from storage will decrease as a result.

Long-range predictions suggest that this winter will be warmer than average over most of Europe. According to Bromander, the difference between a cold and a mild winter is around 25 billion cubic metres (bcm), or 7-8% of the whole EU gas consumption.

Analysts, though, have cautioned against becoming smug.

The temptation in Europe will be to recognize the difficult work and difficult supply and demand choices that have been made, according to Bromander.

GAS Prices may be impacted by increased demand for LNG from Asia if the continent endures a harsh winter and delays LNG outages or significant new outages at gas infrastructure.

The inability to acquire slots for unloading has caused several LNG cargo ships to circle off the coast of Spain, exposing Europe’s lack of regasification capacity.

“Are we safe from harm now? Without a doubt. Although it’s now mild, a protracted cold spell might still cause prices to rise at the end of the winter, or perhaps next winter, “Tom Marzec-Manser, ICIS’s director of gas analytics, noted.

DOES THIS MEAN CHEAPER PRICES FOR HOMES AND BUSINESSES?

Decreased wholesale costs may not always equate to lower retail customer costs.

Energy providers often hedge, or purchase, the energy they will need for clients six months in advance. As a result, changes in the wholesale market take longer to reflect in consumers’ bills.

Numerous companies that use gas as a feedstock, including those that produce fertilizers, ceramics, glass, and cement, have decreased output this year in reaction to the high cost of energy.

According to experts at ING Research, “the concern with the sell-off in the European gas market is the possibility that demand begins to rise up,” adding that this would make it harder for Europe to rebuild storage levels next year in advance of the winter of 2023–24.

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