Europe Prepares For Natural Gas Price Hike
Europe’s natural gas and electricity markets are heading into the winter heating season with prices at record highs amid various supply outages in already tight markets and uncertainty over how much flexibility in gas and power generation there will be.
Forward prices for natural gas are factoring in a winter risk premium in the currently tight market, highlighting the concern that another supply outage could strain the market further and send prices even higher, according to an S&P Global Platts analysis.
Yet, the key factor determining Europe’s gas and power demand this winter will be something that no market can control—weather. Forecasts suggest that the start to the winter in Europe would be mild.
Last winter’s start was also mild, before the Beast from the East swept through Europe at the end of the season, causing one of the coldest winters this decade, squeezing natural gas supplies across Western Europe, and sending prices soaring.
The cold spell in Europe at the end of February and early March led to record withdrawals in the first quarter of 2018, and storage levels dropped to 18 percent of capacity—well below the five-year range, the European Commission (EC) said in its Q1 Quarterly Report on European gas markets.
In the summer, natural gas prices in the UK surged to the highest for a summer season, with Europe’s natural gas market the most bullish in years, as higher-than-expected summer demand and a tighter market drove natural gas price futures to levels last seen during this past winter’s supply crunch. After touching their highest levels for a summer season, natural gas futures prices in Northwest Europe have continued to rise in anticipation of tightening supply as winter is approaching.
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