Natural gas prices in Europe are set to drop even lower than the current ten-year lows this fall.
Storage facilities across the continent are fuller than usual for this time of the year. Natural gas suppliers are not expected to curb deliveries despite the low prices, abundant supply, and tepid demand. The winter heating season in October is set to begin with temperatures around or above seasonal norms, early forecasts suggest.
All these factors combine to create a perfect storm for natural gas prices in Europe, which are set for a further fall this fall, at least until winter comes, analysts and industry professionals tell Bloomberg.
Low liquefied natural gas (LNG) spot prices amid abundant supply and weaker Asian spot demand have helped Europe to fill its storage tanks to more than average levels this summer.
Natural gas prices in Europe dropped to a ten-year low in early July as Russia and the United States continue to fight for market share.
Thanks to the lowest natural gas prices in a decade, storage tanks in many European countries are higher than the five-year average well ahead of the coming heating season. Traders continue to ship LNG cargos to Europe, potentially waiting for trading opportunities when the winter season approaches and prices rise.
As of September 2, storage facilities in Europe were 92.95 percent full, according to data from Gas Infrastructure Europe. The levels of natural gas in storage now are much higher than what is typical for early September.
At the same time, apart from maintenance at Norwegian gas export facilities, the biggest pipeline suppliers to Europe—Norway and Russia—aren’t restricting deliveries even in the face of prices at a ten-year low and the prospect of further price declines.
Russia’s Gazprom admitted last week that its natural gas exports to Europe plus Turkey would drop this year from the record levels seen in 2018.
Yet, the Russian gas giant—which holds around 33 percent of Europe’s natural gas market—is still fighting for market share, Niek van Kouteren, a senior trader with Dutch energy company PZEM, told Bloomberg.
“When we have an opportunity, we make extra sales,” Gazprom Export’s deputy department head Mikhail Malgin told analysts at a conference call last week.
Analysts believe that low gas prices won’t discourage suppliers from trying to deliver more volumes into the European market.
This means that in the short term, supply is likely to outstrip demand in the so-called ‘shoulder season’ when the summer heat waves with high demand for cooling have ended while the winter heating season hasn’t begun yet. Add high storage levels across Europe, and prices are set to dip further, although they are now sitting at their lowest in ten years.
According to Norbert Ruecker, head of economics at Julius Baer Group, Dutch benchmark natural gas prices could be set for another 20-percent decline in the fall, and “If things turn out really bad, maybe the bear case is even lower,” he told Bloomberg.
In addition to supply exceeding demand, the start of this year’s heating season in October could see above normal temperatures in many parts of mainland Europe, IBM’s The Weather Company said last month.
Higher than usual volumes in Europe’s storage is not all that bad, especially if the talks between Ukraine and Gazprom on the gas transit to Europe stall and Russia were to cut off supply to European markets via Ukraine.
But in case there are no extreme events on the European gas market in the coming months, natural gas prices are poised to drop even lower than they are now.