(Bloomberg) -- Italy’s premium for natural gas edged higher, signaling stronger demand for the fuel in the country as a heat wave takes hold of southern Europe.
Italian gas for next-day delivery has traded about €3.80 a megawatt-hour higher than an equivalent contract in Spain this week. That’s the widest spread since April. The contract has also surged against day-ahead prices for the European benchmark.
Read: Searing Heat Triggers Fuel-Supply Worries in Europe and Beyond
Above-normal summer temperatures are leading to higher electricity consumption across Mediterranean Europe, but the impact on short-dated gas is pronounced in Italy, where the grid relies more on natural gas to meet demand for power and cooling. In Spain, renewables are more widely used.
Traditional thermal power plants are contributing to just under half of actual generation in Italy by Thursday mid-morning, with solar and wind power making up a smaller share of the total, according to grid operator Terna SpA.
By contrast, Spain’s gas demand has been sluggish, with power sector consumption slumping 47% in the first ten days of the month from a year earlier, data from operator Enagas SA show.
Read: Persistently Low Demand Weighs on Spain’s Gas Market, RBC Says
“Extreme danger” of fire is present in parts of southern Italy, and large areas of Sicily face severe wildfire risk. In Rome, maximum temperatures will hover around 33-35C (91-95F) through the end of the week, Maxar Technologies Inc. forecasts.
Separately, front-month Dutch futures, the European benchmark, also advanced Thursday, rising as much as 2.2% and trading at €31.32 a megawatt-hour by 12:12 p.m. in Amsterdam.
Attention also remains on hot weather in Japan, a key buyer of liquefied natural gas. Japanese LNG buyers are beginning to secure shipments from the spot market, as hot weather lifts gas-fired power generation and threatens to drain inventories.
Freeport LNG plant in Texas is yet to restart after Hurricane Beryl knocked off power supply in the state.
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