European natural gas prices for the winter months tumbled amid tepid demand, while higher-than-normal fuel stockpiles make it easier to prepare for the upcoming heating season.
Benchmark Dutch futures for February delivery plunged as much as 8.5% — the most in four months — to around €51 per megawatt-hour. Prices for December and January also slumped.
The winter gas premium is now narrowing, after widening in recent weeks, amid a lackluster recovery in demand. There’s also growing confidence that the market will be able to withstand any potential shocks, following price spikes last year as Russia curbed supplies in the fallout of its war in Ukraine.
“For the time being, Europe should be on a comfortable path for meeting the storage requirements for winter, especially if economic activity disappoints,” said Francesco Martoccia, an analyst at Citigroup Inc. “A lot of the adjustments have occurred on the demand side of things, with industrials really being able to cope with an increase in gas prices.”
Europe’s gas inventories are unusually high — about 63% full — after a month of net injections and an influx of liquefied natural gas. Front-month have more than halved since the start of this year amid stable supply, mild weather and stronger contributions to power generation from renewables.
Industrial gas demand in Europe from January to April was 20% lower than the five-year average, according to Wood Mackenzie Ltd. research analyst Rosaline Hulse. While some countries have pared the decline in consumption, it’s not indicative of a full rebound — “more a gradual warming up of sentiment,” she said by email.
Still, traders are eyeing the possibility of higher gas usage in the coming weeks if the weather turns hotter. That could mean higher fuel consumption to power air conditioning, as energy companies seek to replenish gas inventories ahead of winter. Risks for the upcoming winter are also in focus — from shifting weather to a sudden rebound in China’s LNG imports.
Meanwhile, the Group of Seven nations and European Union are taking further steps to reduce their reliance on Russian energy. The G-7, meeting in Japan later this week, is seeking to prevent the reopening of routes where Russia cut supplies, according to a draft statement seen by Bloomberg.
The EU is discussing an 11th sanctions package, which could include a formal ban on the northern leg of the northern Druzhba oil pipeline from Russia, Bloomberg previously reported. Any EU ban would need the full backing of all member states.
Dutch front-month gas, Europe’s benchmark, traded little changed at €32.80 per megawatt-hour — near the lowest levels since July 2021 — by 1 p.m. in Amsterdam. The UK equivalent contract declined.
--With assistance from Elena Mazneva and Alberto Nardelli.