Feb 28, 2023
European Gas Prices Recede Following Record Demand Cut
(Bloomberg) -- European natural gas prices fell for a third consecutive month — the longest such streak since 2020 — as demand plunges and a region-wide energy crisis recedes.
Benchmark futures declined 19% in February and have lost almost 40% since the start of the year.
The slump, which should help Europe rein in inflation and soaring energy bills, comes after sweeping efforts among households and companies to cut fuel use during a mostly mild winter. The region’s gas demand fell by 13% in 2022 — the steepest drop on record — the International Energy Agency said in a quarterly report released Tuesday.
“Prices are returning to manageable levels, particularly in Europe, where a mild winter and demand destruction have helped to cool markets,” said Keisuke Sadamori, the IEA’s director of energy markets and security.
Heating needs are likely to remain limited as Europe approaches the end of winter, with temperatures in the northwest of the continent set to rise to normal levels by mid-March. Forecasts show that a freeze is expected to linger in the north over the next days.
The IEA warned that the favorable picture for Europe could change this year as demand for liquefied natural gas picks up in Asia, particularly in China, increasing the competition for cargoes. China’s strict Covid restrictions curbed the country’s energy use last year, leaving room for Europe to import record amounts of LNG and fill storage sites.
Read More: China Gas Use Is Bigger Worry for EU Than Russia Halt, IEA Says
Now that restrictions are lifted, Chinese demand is the “big unknown,” and a bullish scenario could see the country’s LNG imports surge as much as 35% in 2023 if costs fall further and its economy expands quickly.
“This would spark fierce competition in international markets and could see prices return to the unsustainable levels seen last summer, representing a concern for European buyers in particular,” the agency said.
Benchmark Dutch front-month settled 1.3% lower at €46.67 per megawatt-hour. The UK equivalent contract declined 1.1%.
--With assistance from Carolynn Look.
©2023 Bloomberg L.P.