A Mild Winter Could Cut Europe’s Natural Gas Prices in Half

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  • Europe’s gas stockpiles are plentiful, with a possible mild winter potentially reducing natural gas prices by half, according to a Morgan Stanley analysis.
  • In contrast, if the winter is colder than average and renewable energy generation is low, gas prices could spike to significantly high levels.
  • Despite the optimistic forecast, uncertainties regarding winter weather and the effectiveness of renewable energy sources leave future gas prices unpredictable.

Europe’s natural gas stockpiles are at elevated levels and on track to be full sooner than planned. This gives governments and industries confidence that last year’s energy crisis will not be repeated, reports Oil Price.

Volatility

The benchmark natural gas prices are one-tenth of the records seen last summer when Russia slashed pipeline supply to Europe. Volatility, however, will continue as prices and demand ahead of and during the coming winter will depend on two factors that are out of EU control—the weather and the contribution of renewable energy sources to the mix depending on the weather.

Thanks to milder winter weather, reduced EU consumption, and demand destruction in industry due to the high energy costs, Europe made it through the 2022/2023 winter without gas shortages or gas rationing.

Ahead of the 2023/2024 winter, Europe can only hope for another winter of milder temperatures without prolonged periods of freezes that would boost demand for heating and for gas-fired power generation.

In case of another mild winter – which is possible but far from certain – Europe’s gas prices could plunge from current levels and halve to $16.85 (15 euros) per megawatt-hour (MWh), according to Morgan Stanley.

The front-month futures at the TTF hub, the benchmark for Europe’s gas trading, settled at $30.60 (27.24 euros) per MWh on Thursday, while futures prices for December through February are around $56 (50 euros) per MWh.

Morgan Stanley’s 15-euro call is just one of the bank’s scenarios for Europe’s natural gas prices after October when the winter heating season is expected to begin. At the other end of the scenarios, prices could spike to $112 (100 euros) per MWh if the 2023/2024 winter is colder than normal and renewables cannot generate too much electricity.

After October, using a weighted average, Morgan Stanley sees prices more likely to trade around $50 (45 euros) per MWh. This week, Europe’s prices slumped from June levels as demand – despite a major prolonged heatwave – continues to be generally weak amid an industrial slowdown.

Prices had jumped in June as maintenance on several large Norwegian gas fields and export routes reduced supply to Europe via pipelines from Norway, which is now Europe’s single largest gas supplier.

Stockpiles are also elevated, giving further confidence to governments ahead of the winter. As of July 12, gas storage sites across the EU were 80.3% full, according to data by Gas Infrastructure Europe.

The EU has set a target to reach 90% full gas storage by November 1, 2023. Not only will it hit that target ahead of schedule, but it could also fill its storage tanks to 100% by early September, according to Morgan Stanley. Rystad Energy also believes Europe will reach the target earlier than planned.

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Source: Oil Price