Europe Natural Gas Prices Drop to 18 Months Low; level with the pre-war era.
European natural gas prices had dropped to the pre-war era when Russia launched an invasion of Ukraine nearly a year ago. The prices had dropped to €50 per megawatt-hour for the first time in the last 18 months.
On Friday, the European benchmark TTF fell nearly 5% to a low of €49.95 per megawatt-hour. As market confidence increased on the pretext that the European nations will avoid gas shortages this winter and next year. ‘A similar phenomenon was reported across European countries as UK’s gas prices hovered at similar levels.
Historically, European natural gas prices had fallen over 85% from their peak of €300 per megawatt-hour last summer. When Russian authorities at the Kremlin cut off the gas supply to the continent, which increased the risk of harsh winters.
The recovery in gas prices is seen as a landmark moment in the energy crisis. And the Russian war as mild winters and alternative supplies from the Middle East helped Europe to tackle the situation.
“Europe looks like it has successfully weaned itself off Russian gas,” says Henning Gloystein at consultancy Eurasia group. TTF was still expensive, but we no longer needed to rate it at high risk of shortages.
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Dutch TTF continuous natural gas contract:
Set back for Russia:
The Russian authorities and President Vladimir Putin see the fall of gas prices to pre-war levels ahead of the first anniversary as a setback.
Russia’s energy revenue, which soared after the invasion of Ukraine in Feb last year helped the Russian military. It is now in distressed waters. Russia is now forced to sell oil at a deeply discounted rate because of the cap imposed by the US and the European countries. This has also affected Russia’s exports.
The fall in gas prices is also seen as an indication that the European nations. Specifically, the United Kingdom was forecasted to go into recession this year. It will either witness a mild recession or even manage to avoid the recession. The European Commission says that the drop in prices combined with low consumer spending has driven them out of major crises in the short run.
Soaring gas prices coupled with supply chain issues increased the cost of living last year. This forced the inflation numbers to levels not seen in decades. as Russia used its gas supplies against the sanctions imposed by the western countries after the full-scale invasion of Ukraine.
However, Europe has managed to store large stocks of gas as the end of winter approaches due to reduced demand, mild winter, and seeking alternatives for Russian natural gas.
Prices remained elevated from normal levels of €20 – €30 before the advent of the Russia-Ukraine war. Still, analysts claim it is not in danger and will not hurt the European economies further.
According to analysts, consumer electric bills are unlikely to see a similar trend soon as suppliers will continue to give hedged gas at high rates for a couple of more weeks. However, as cheaper gas is infused into the system, this trend will continue to decrease.
According to the trade group Gas Infrastructure Europe, gas storage in Europe is at 65%. Which is higher than the normal levels. With only 5-6 weeks of winter season left, it would be correct to say that European nations have avoided an acute gas shortage this year.
Europe; the next winter:
Analysts are sure that following a similar trend, Europe will likely avoid the gas shortage in the winter of next year if the Russia-Ukraine war prolongs further.
As shown in the above chart, the worst-case scenario that f the Russian gas supplies. Which are currently at a level of 9%, down from 40-50% normal levels, goes even further down to 0%, and the cold winter prevails in the year 2023-2024 with reduced savings effort than it would hurt the European countries and would create a big crisis. However, there is nothing to worry about, as the chances of this happening are pretty low.
The scenario may build if the war prolongs and the following winter becomes harsh. It would become difficult for Europe to reduce the demand as most of the reduced demand this winter resulted from the mild winter. Harsh winters, coupled with increased gas demand from China after its recovery from the lockdowns, will undoubtedly raise gas prices from the current levels of futures as of now.
Nonetheless, this is a developing event as the war continues raging in Ukraine. Currently, analysts are not forecasting any future events that might unexpectedly force the prices to increase.
