Over the last week, European natural gas prices have been trading at levels not seen since prior to Russia’s invasion of Ukraine in February 2022. TTF prices, the European benchmark, have been trading below €75/MWh since the 2nd of January. Given the record price highs of over €330/MWh in late August 2022, the decline in prices has been welcomed across Europe, particularly by consumers who hope for a reduction in their domestic energy costs.
Europe’s warm winter has been key to lowering natural gas prices because it reduced the demand for the gas that had been stored up in anticipation of the colder months. The successful drive to maximise gas storage across the continent last year has been bolstered by the lack of demand, resulting in almost record stocks entering the new year and 36% above the previous ten-year average. These record inventory levels have allayed last year’s fears of blackouts throughout Europe.
Less predictable, particularly in an era of climate change pledges, was the return of coal to the forefront of European industrial production. A quick look at Germany, often taken as a paradigm for the state of European industry, reveals insights into the revival of the most decried fossil fuel. Prior to the invasion of Ukraine, Germany relied on Russian gas for approximately 15% of its total energy supply.
Next year (4th Qtr) prices will rip upward as supply becomes much more scarce vs demand. US forecast to be 12 bcfpd under supplied.