London
CNN Business
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Europe has more natural gas than it knows what to do with. So much so, in fact, that spot prices briefly turned negative early in the week.
For months, officials have warned of an energy crisis this winter as Russia – once the region’s biggest natural gas supplier – cut supplies in retaliation for sanctions imposed by Europe over its invasion. from Ukraine.
Today, gas storage facilities in the EU are nearly full, tankers carrying liquefied natural gas (LNG) line up at ports, unable to unload their cargoes, and prices plummet.
The price of benchmark European natural gas futures has fallen 20% since last Thursday and more than 70% since hitting a record high in late August. On Monday, Dutch gas spot prices for within-hour delivery – which reflect real-time European market conditions – fell below €0, according to data from the Intercontinental Exchange.
Prices turned negative due to a “network oversupplied,” Tomas Marzec-Manser, head of gas analytics at Independent Commodity Intelligence Services (ICIS), told CNN Business.
It’s a hugely surprising turn of events for Europe, where households and businesses have been stunned by skyrocketing increases in the price of one of its most important sources of energy over the past year.
Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, says unseasonably mild weather is largely responsible for the dramatic change in fortunes.
“In countries like Italy, Spain, France, we see temperatures and [gas] consumption closer to August and early September [levels]”, he told CNN Business. “Even in the Nordic countries, the United Kingdom and Germany, consumption is well below average for this time of year,” he added. .
The European Union has also built up substantial buffers against any further supply cuts by filling gas storage facilities close to capacity. Stores are now almost 94% full, according to data from Gas Infrastructure Europe. This is well above the 80% target the bloc has set for countries to reach by November.
“That’s an extremely high level,” Di Odoardo said, noting that the maximum storage level has averaged 87% of capacity over the past five years.
Europe’s push to get as much fuel as possible before winter has resulted in a backlog of LNG carriers at European ports, compounded by a shortage of LNG import terminals.
The bloc increased its LNG imports from the United States and Qatar as natural gas imports from Russia fell.
Felix Booth, head of LNG at data firm Vortexa, told CNN Business that as many as 35 ships are either floating nearby or sailing very slowly to ports in northwest Europe and the Iberian Peninsula due to lack of storage options.
These ships “will probably take another month to find a domicile for the cargoes,” he said.
Together they transport around $2 billion worth of LNG, according to Kpler, citing energy market data provider Argus Media.
Despite the recent crisis, about €100 ($100) per megawatt hour European natural gas futures are still 126% above where they were last October, when economies began to reopen from their pandemic lockdowns and demand surged.
Prices could rise sharply again in December and January as the weather cools, prompting some of these tankers to wait a bit longer offshore before entering port to unload, Booth said.
And despite the fact that Russia’s share of Europe’s total gas imports has fallen from 40% to just 9%, the region could find itself in a difficult situation next summer as it tries to rebuild its reserves before the following winter.
Prices are expected to reach €150 ($150) per megawatt-hour by the end of 2023, said Bill Weatherburn, commodities economist at Capital Economics.
“Filling the storage before next winter will force the EU to import even more LNG as it is needed to replace Russian gas imports lost for an entire year,” he told CNN Business.
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