Natural gas prices could fall below zero in Europe

Eftersom den ljumna efterfrågan på naturgas från kraftproduktion och industri har skickat de europeiska naturgaspriserna i ett fritt fall de senaste veckorna, utesluter inte handlare möjligheten att Europa kan se en kort nedgång i priset på naturgas till under noll i sommar.

As the tepid demand for natural gas from power generation and industry has sent European natural gas prices into a free fall in recent weeks, traders are not ruling out the possibility that Europe could see a brief decline in the price of natural gas to below zero this summer.

The combination of large stocks at the end of a mild winter, steady LNG imports and weak demand has led to eight weeks of weekly losses in European benchmark natural gas prices, the longest weekly losing streak in more than six years.

Although the benchmark price is unlikely to fall below zero, some regional daytime natural gas prices in Europe could see sub-zero prices briefly this summer, if demand remains weak and renewable electricity generation remains high.

Sharp contrast with last year

Price developments in European natural gas prices are in sharp contrast to last year, when benchmark prices soared to as much as $322 (€300) per MWh in August. This was after Russia reduced supply via pipelines and governments and industry were alarmed by potential gas shortages in winter.

Thanks to milder winter weather, reduced consumption at EU level and demand for industrial destruction due to the high cost of energy, Europe passed the winter of 2022/2023 without natural gas shortages or rationing.

Currently, natural gas stocks are comfortably high for this time of year. On May 24, natural gas storage sites in the EU were 66.71% full, according to data from Gas Infrastructure Europe. The level of natural gas in storage is the highest for this time of year in at least a decade.

Despite falling natural gas prices, industrial consumption of the fuel is not taking off, although it is possible that large industrial energy consumers are waiting for a further fall in gas prices, analysts say.

The short-term outlook for natural gas prices in Europe looks negative. But things can quickly change if demand increases in summer heat waves with low wind speeds that can weaken wind power production. Industrial customers may also start using more gas if prices continue to fall, ultimately supporting prices. A recovery in Asian demand for LNG could also result in higher European prices as Europe has to compete with Asia for spot cargoes.

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