Warmth Drags European Gas to Biggest Weekly Drop Since September

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(Bloomberg) — European natural gas headed for the biggest weekly decline since September, dragged down by mild weather which is expected to remain over most of the region during the holiday period.

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Benchmark futures fell as much as 5.3% in thin pre-Christmas trading, and are more than 20% lower for the week. Temperatures are forecast to be normal to above average through early January, with abnormal warmth in parts of central and southern Europe. Plentiful supplies of liquefied natural gas, fuller-than-normal inventories and a typical year-end slowdown in industrial demand are also helping push prices lower.

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Yet, traders are closely watching the region’s price difference with Asia, as spot LNG cargoes could end up there if it becomes more profitable. A winter storm battering huge swaths of the US threatens to temporarily disrupt LNG exports from the Gulf Coast, which could influence the European market in the days ahead.

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There are also risks that Russia may cut the little gas it’s still sending to Europe after severe curbs earlier this year, which had pushed energy prices to records, hammered economies and drove inflation to the highest in decades. If a price cap, planned by the European Union, violates deals between Gazprom PJSC and its counterparties, Russia “reserves the right to think about whether we’re obliged to honor these contracts,” President Vladimir Putin said Thursday. 

“A sustained influx of LNG and higher Norwegian flows — set to backfill 80% of 2022 Russian gas cuts — and a 15% price-driven demand-destruction scenario look sufficient to navigate a mild winter,” analysts at Bloomberg Intelligence said in a note. “Yet a cold snap, coupled with the full halt of Gazprom’s remaining two pipelines into Europe, could stoke price volatility and deplete storage by the end of winter, likely extending this crisis into another.”

Dutch front-month gas, Europe’s benchmark, was lower at €87.10 a megawatt-hour by 8:42 a.m. in Amsterdam, the lowest intraday level since June 14.