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European natural gas prices have fallen to their lowest levels since August as traders bet the continent’s vast reserves will see it through the winter, even as the region is engulfed in a cold snap.
The benchmark TTF hit a five-month low in Amsterdam in early January as investors grow increasingly confident the EU’s gas stores will cover the bloc through to warmer weather in spring and beyond.
The benchmark, traded on the Intercontinental Exchange, is down nearly 10 per cent compared with the previous week’s close, defying a cold snap after a small rise on Wednesday to €31.19 per megawatt hour. It also remains significantly lower than the same time last year, when it was trading at about €70/mwh.
“It wouldn’t be such a bold statement to say the winter is over in the gas market because the storages are so full,” one gas trader said. Another trader said that some have already started shifting their attention to the next winter.
Storage levels for Europe have become a focus for traders after Russia’s full-scale invasion of Ukraine and began to slash the pipeline supplies on which the bloc had historically relied. In response the EU has increased its stores of gas to see it through winters, parking some of its excess purchases in Ukraine.
In spite of continued warnings by the International Energy Agency that Europe could find it hard to replenish its stocks, the region has found itself in a comfortable position for consecutive winters.
EU’s storage stood at 83 per cent full as of Monday, according to industry body Gas Infrastructure Europe, the second-highest level for this time since at least 2011 when data is available.
“Gas consumption has remained well below normal levels, which coupled with healthy LNG and pipeline supply, means storage reserves are way above normal for the time of year for a second year in a row,” said Tom Marzec-Manser, head of gas analytics at consultancy ICIS.
The high levels are down to the mild winter weather so far, while extensive imports of liquefied natural gas last summer also helped refill the EU’s storages at an unprecedented pace. The EU countries imported close to 100mn tonnes of LNG in 2023, a rise of 5 per cent from a record high 2022, according to data provider Kpler.
“Not only does that help de-risk any supply or demand shocks for the remainder of winter, but also means there will be less additional demand to refill those tanks during the upcoming summer,” Marzec-Manser said.
Moreover, the cold snap across Europe is not expected to last for a lengthy period, with “most of mainland Europe trending warmer than normal next week”, according to US weather data company DTN.
If Europe does not see extreme cold weather for the rest of the winter, gas traders said EU storages could finish March — seen as the end of the winter gas season — at about 50-55 per cent full. That total is comparable to record-high levels that the bloc saw last year.
Europe typically uses the six months from the start of April to restock supplies. In the five years to 2023, the EU started off the refilling season with storage tanks about 41 per cent full on average.
The European Commission has a target of 45 per cent-full storage on average across the bloc by February 1 2024, but said member states should “strive to reach” 55 per cent.
However, gas prices still remain elevated compared with pre-Ukraine invasion price levels, while demand from high users such as manufacturers is faltering and slowing economic output. Industrial gas demand in 12 European countries, including the UK, was 23.5 per cent below the average between 2017 and 2021, data from ICIS showed.
Even so, some traders worry that the market could be getting complacent.
“There is always a but,” said Marco Saalfrank, head of continental Europe merchant trading at energy group Axpo. “If February and March turn out to be much colder than expected, it could still be that we are ending up at a level lower” than the average between 2019 and 2023, he said.
With the pipeline supplies from Russia sharply curtailed, the EU and UK now rely heavily on imported LNG from countries such as the US for their natural gas. The EU’s ability to withstand drawdowns over coming winters will depend on whether it can secure enough LNG during the summer months in the market, as countries compete for supplies with Asia.
“Europe has lost its flexible supplies of gas like the domestic production in Groningen and Russian pipeline gas,” Saalfrank said.
European gas prices “will react faster and in a stronger way than in the past” due to the loss of those flexible supplies and the need to attract LNG cargoes to Europe, he added.
