Europe has so much natural gas that prices fell below zero

(CNN Business) — Europe has so much natural gas that it doesn’t know what to do with it. To the point that spot prices briefly plunged below zero earlier this week.

For months, officials have warned of an energy crisis this winter after Russia — once Europe’s biggest supplier of natural gas — cut supplies in retaliation for Western sanctions imposed after its invasion of Ukraine.

Now, the European Union’s gas storage facilities are almost full, while tankers carrying liquefied natural gas (LNG) are piling up in ports without being able to unload it. And prices plummet.

Benchmark European natural gas futures have plunged 20% since last Thursday and more than 70% since reaching their all-time high in late August. On Monday, spot prices for Dutch gas for delivery within one hour –– reflecting European market conditions in real time–– fell below 0 euros, according to data from the Intercontinental Exchange.

Prices plunged to negative due to an “oversupplied network,” Tomas Marzec-Manser, head of gas analysis at Independent Commodity Intelligence Services (ICIS), told CNN Business.

This represents a hugely surprising turnaround for Europe, where households and businesses have recently suffered drastic increases in the cost of one of their main sources of energy.

Warmer weather to the rescue

Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, said unusually mild weather this season is largely to blame for this reversal of fortunes.

“In countries like Italy, Spain, France, we are having temperatures and consumption [de gas] closest to the [niveles] August and early September,” he told CNN Business. “Even in the Nordic countries, the UK and Germany, consumption is well below average for this time of year,” he added.

The European Union has also prepared substantial reserves against any further reduction in supply by filling gas storage facilities close to capacity. Warehouses are now almost 94% full, according to data from Gas Infrastructure Europe. A figure much higher than the 80% target the bloc set for countries to reach in November.

“That’s an extremely high level,” Di Odoardo said. He also noted that the maximum level of storage averaged 87% of capacity over the last five years.

Europe’s commitment to gas

Europe’s efforts to secure as much fuel as possible before winter have led to LNG tankers piling up at European ports, in delays made worse by a shortage of LNG import terminals.

The bloc increased LNG imports from the United States and Qatar, while those of natural gas from Russia fell.

Felix Booth, head of LNG at data firm Vortexa, told CNN Business that as many as 35 vessels are floating close by or sailing very slowly toward ports in northwestern Europe and the Iberian peninsula due to a lack of storage options.

Those ships “will probably take another month to find a home for the cargoes,” he said.

Together they transport about $2 billion worth of LNG, according to Kpler, citing energy market data provider Argus Media.

Higher gas prices next year

Despite the recent drop to around 100 euros ($100) per megawatt hour, European natural gas futures are still 126% above their value last October, when economies began reopening from lockdowns. the pandemic and demand skyrocketed.

Prices could rise sharply again in December and January as the weather turns colder, providing an incentive for some of those tankers to wait a little longer offshore before coming into port to unload, Booth said. .

And despite the fact that Russia’s share of total gas imports to Europe has fallen from 40% to just 9%, the region could face a difficult situation next summer, when it tries to replenish its reserves before next winter.

Prices are expected to reach 150 euros ($150) per megawatt hour by the end of 2023, said Bill Weatherburn, a commodity economist at Capital Economics.

“Filling up the storage before next winter will require the EU to import even more LNG because an entire year’s worth of Russian gas imports need to be replaced,” he told CNN Business.

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