European Gas Prices Drop as Warm Weather Eases Winter Shortage Fears

A liquefied natural gas (LNG) carrier. (vladsv/Adobe Stock)

European natural gas prices fell, as mild weather and ample stockpiles ease winter shortage fears, while supplies from Russia dwindle.

Average temperatures will be warmer than usual throughout Europe over the next two weeks, during the worst energy crisis in decades, according to a report in Bloomberg.

The warm weather has led to temporary reprieve and likely will delay withdrawals from gas stockpiles during the colder heating season.

Forecaster Weather Co. is predicting moderate to high wind power potential throughout the continent, which will ease demand for gas power generation and lower prices.

Grid data in the United Kingdom, according to Bloomberg, is predicting similar wind output and energy-price easing.

Dutch TTF Gas Futures, the European benchmark, dropped as much as 10 percent on Oct. 4, to its lowest level since the end of July.

The outlook for gas prices this week is bearish, due to lower demand and increased Norwegian gas exports, said Yuriy Onyshkiv, an energy analyst at Refinitiv.

“The long-term weather forecast around seasonal norms also provides confidence to market participants as we move deeper into the winter season, when weather fluctuations have a major effect on gas consumption and balance,” noted Onyshkiv.

The End of Russian Gas to Europe

The loss of most Russian natural gas supplies due to the war in Ukraine has forced nations throughout Europe and in the United Kingdom to fill up their gas reserves in fear of shortages.

Russia formerly supplied around 40 percent of Europe’s gas needs, but now only makes up less than 10 percent.

The situation will likely remain unchanged, after the Nord Stream 1 and the Nord Stream 2 pipelines running under the Baltic Sea to Germany were sabotaged last week.

The other pipeline through Belarus and Poland has also been shut down.

The only remaining flow of Russian gas comes from pipelines through Ukraine to Slovakia and across the Black Sea through Turkey to Bulgaria.

Europe, however, still has not found enough sufficient and reliable supplies to replace Russian gas, which has led to economic hardship throughout the continent, particularly for its largest economy, Germany.

Analysts estimate that the European Union (EU) will need to import around 200 million tonnes of liquefied natural gas (LNG) over the next decade to phase out Russian gas.

Germany would need around 40 million tonnes of LNG to replace the 50 billion cubic meters of the pipeline gas it used to get from Russia.

The energy shortages have led to record a 10 percent rise in consumer inflation throughout the eurozone.

Meanwhile, the Russian energy company Gazprom made a deal with Hungary for a three-year delay in payments of natural gas, which were due in the next six months, according to Bloomberg, citing the Hungarian Economic Development Ministry.

This brought much relief to the central European nation after fears that import payments would make its now serious budgetary problems even worse.

The deal comes days after Gazprom suspended natural gas deliveries to Italy after a dispute between the company and Austria, which controls transit rights to the south of the Alps.

Europe Stocks Up for a Cold Winter

Energy reserves were filled at a steady pace, as European countries ramped up imports of LNG via ship from the United States and Qatar and through increased pipeline supplies from Norway and Azerbaijan for the winter.

Inventories were at about 88 percent capacity at the beginning of October, above the five-year average for this time of year, said Bloomberg, which has helped slash gas prices in half from their highs at the end of August.

Total storage is well ahead of the Nov. 1 target of 85 percent this year set by the European Council.

The EU also agreed last week to mandate a reduction in electricity consumption by at least 5 percent during peak price hours.

European leaders are still hopeful that the bloc will be able to get through the end of winter due to the milder weather.

French Prime Minister Élisabeth Borne said, on Oct. 3, that the country had diversified its supplies and stocked up to the point that her nation could handle the energy crisis this winter.

“We are ready to face this winter,” Borne told France’s lower house of parliament, adding that there are no risks of energy cuts in coming months “if everyone plays their part.”

However, any disruptions to gas imports from non-Russian sources would make restocking more difficult.

If all remaining gas imports from Russia totally cease, or if temperatures suddenly drop this winter, energy shortages may arise well before the end of winter in 2023, according to EU officials.

Economists are reporting that high energy prices will likely lead to a recession in Europe by the end of this year, or at the beginning of 2023, at the latest.

Even if the continent were able to pull through this winter, inventories will likely fall to minimum levels, which will require another, even larger attempt to restock supplies for the winter of 2023–24.

“We may well avoid a disaster this winter, [but] we are more concerned about the following winter,” Ben Luckock, co-head of oil trading at Trafigura, told the Energy Intelligence Forum in London, according to an article by Reuters.

Reuters and the Associated Press contributed to this report.