European natural gas prices are poised for their biggest weekly drop this year as the region continues to fill up its storage facilities and demand for the fuel remains lackluster.
Benchmark front-month contracts edged higher on Friday, but are still on course for the biggest slump since December 2022. Prices are are down more than 60% since the start of the year, even after a volatile June.
The pronounced weekly fall comes as storage facilities are already over 80% full and flows from Norway, Europe’s top supplier, are picking up again despite works still affecting some of the country’s facilities. High inventories mean that Europe could run short on space for new injections by September, raising questions about how much lower prices can go before the region hits a supply glut.
A mild winter ahead could see natural gas prices slump to around €15 — about half the current level, according to Morgan Stanley. That’s at least one scenario envisioned by the bank after October, which it acknowledges is a tricky period to forecast, in a sign that the region is still finding its footing as it recovers from a historic energy crisis.
Read more: Mild Winter Could Halve European Gas to €15, Morgan Stanley Says
Other key risks for that period include the possibility of further disruptions by large producers, as well as maintenance works affecting global liquefied natural gas supplies, analysts at Energy Aspects Ltd. said in a note. Europe’s increased reliance on LNG also presents fresh risks for the market and could increase volatility given uncertainty over Asian price responsiveness, the analysts wrote.
For the moment, the market is anticipating the upcoming Nyhamna gas processing plant return, which will support flows. A spokesperson for Shell Plc’s Norway unit said earlier this week that it is preparing for the facility to start-up on July 15. However, traders are watching for possible updates, given that works had previously been extended amid technical issues. The Troll field is also returning to full capacity after lengthy seasonal work, grid data show.
At the same time, tepid demand for the fuel is outweighing concerns that sizzling temperatures in southern Europe could have a major impact on prices. Still, Electricite de France SA warned it will curtail production at one nuclear reactor this weekend as a heat wave restricts the amount of water that can be discharged into the Rhone River.
Dutch front-month gas, Europe’s benchmark, traded 1.1% higher at €26.91 per megawatt-hour at 9:18 a.m. in Amsterdam. The UK equivalent futures rose 1.2%.