European gas slumps to 16-month low on back of strong supply outlook

Natural gas prices in Europe dropped to the lowest level since September 2021 as the supply outlook got a boost with full stockpiles in China forcing buyers to send LNG cargoes to the continent.

Benchmark futures fell as much as 15% on Monday, taking the decline so far this year to 27%. Chinese importers are trying to divert February and March shipments to Europe amid weak prices at home and high inventories. That’s easing concerns that the reopening of China’s economy will boost demand and pull cargoes away from the west.

Gas markets have turned calmer after a tumultuous period last year when energy prices surged to records and hammered economies everywhere. Some optimism has emerged in Europe that the worst could be over as inflation starts to ease and fears of a recession recede. 

A prolonged spell of mild weather has been a major contributor. While a cold snap is expected this week, it’s likely to be brief and won’t be strong enough to dent gas inventories that have barely been touched over the last month as demand remains in check and LNG imports are strong.      

“There currently appears to be no end to the losses on the European gas market,” Energi Danmark said in a note on the website. “The panic-like situation from last year has been replaced by confidence that Europe will get through this winter without any supply issues.”
 

 

Still, some are warning that the crisis that was triggered by Russia’s deep supply cuts following the invasion of Ukraine is far from over. Europe has been “lucky” with the weather, and supply remains exposed to geopolitical events, Iberdrola SA’s Chairman Ignacio Sanchez Galan said. Gas prices may have dropped, but are still almost double their five-year average for the time of year. 


For now, the gas market is getting a helping hand from elsewhere too. Renewables are contributing to less use of gas in electricity in Europe, with Germany producing a unprecedented amount of wind power on Saturday while Britain also reached a record last week. 

Dutch front-month gas futures, Europe’s benchmark, slipped 14% to €55.48 a megawatt-hour at 3:49 p.m. in Amsterdam. They fell for a fifth straight week on Friday. The UK equivalent contract was 15% lower on Monday.