A warmer-than-expected start to winter across large parts of the world is rapidly easing fears of a natural gas crisis that had been predicted to trigger outages and add to pressure on power bills.
Forecasts point to temperatures above seasonal norms for most of Europe in the next two weeks, while the US expects better weather through mid-January. It’ll be more comfortable too across much of China — the world’s biggest gas importer — over the next 10 days, and Tokyo may see a spike around mid-January.
Gas futures are plummeting on reduced fuel consumption and the weaker outlook. European gas fell yesterday, a day after briefly touching the lowest level since the war in Ukraine started. In the US, benchmark prices dropped as much as 11% yesterday to dip below $4 per million British thermal units for the first time since February.
“The risk of extreme market tightness that people were worried about before the winter started seems low now,” said Abhishek Rohatgi, a Singapore-based analyst at researcher BloombergNEF. Europe has rebuilt inventories, while milder weather across North Asia means there’ll be less competition for liquefied natural gas cargoes, he said.
Governments and utilities had been bracing for gas shortages after Russia invaded Ukraine last year, disrupting energy deliveries and lifting global demand for LNG. Prices for gas and coal hit a record as importers rushed to stockpile fuel for winter, when consumption peaks.
Those efforts to build inventories mean the biggest consumers are now sitting on comfortable supplies. In fact, Germany was able to add more gas into storage at the end of December as a mix of warmer weather and lower activity during the holiday season trimmed fuel use. Gas stocks there are now above 90% full, after slipping to a season low of 87% before Christmas.
Gas storage across Europe is 84% full, far above the five-year seasonal norm of 70%, according to Gas Infrastructure Europe.
Strong winds are also reducing stress on the region’s energy systems. Germany is expected to produce near-record wind power on Wednesday, according to a Bloomberg model, curbing the need for gas to produce electricity.
Demand destruction in recent months has helped to balance the gas market. Some industrial consumers in Europe lowered or halted output because they didn’t want to pay high prices, while emerging nations such as Pakistan and Bangladesh stopped importing LNG because they could no longer afford it.
The impact in China of a surge in Covid cases should add to the muted picture, keeping gas demand lower there for the next few months, according to traders.
Still, there are risks ahead from any unexpected bouts of extreme weather. A prolonged blast of late-winter cold could drain gas inventories and catapult fuel prices higher. Utilities will also soon need to begin planning to avoid shortages again next winter as they adjust to a lack of Russian fuel.
Meanwhile Germany received its first shipment of liquefied natural gas — from the US — at a new floating terminal in the North Sea port of Wilhelmshaven, a milestone in the nation’s quest to diversify its energy supplies. A tanker arrived yesterday with enough gas to supply 50,000 German households with energy for a year, according to a joint statement from terminal operator Uniper SE and Venture Global LNG Inc.
The vessel loaded at the latter company’s Calcasieu Pass project in Louisiana.
Germany is turning to LNG from allies such as the US as it seeks to reduce dependence on Russia amid the Kremlin’s war in Ukraine. Berlin fast-tracked its first LNG import terminals by renting five floating storage and regasification units.
The country’s first private floating LNG terminal, in Lubmin, received its first shipment last month as the project nears an official start.