European natural gas prices have fallen recently due to a combination of high inventories, inadequate terminals, lower demand and warmer temperatures. The main gas futures contract of the Dutch Ownership Transfer Centre (TTF), which is regarded as the European gas benchmark price, fell below 100 euros per megawatt hour for the first time since June, with some contracts even briefly falling into negative territory. But analysts say falling gas prices will not solve Europe's energy woes in the short term.
As the energy game between the European Union and Russia intensifies, European countries have significantly stepped up their global gas sourcing efforts since the summer. Buoyed by high prices, gas sellers are rushing into Europe, with special ships carrying large quantities of liquefied natural gas from the U.S., Qatar and other big producers.
The EU's target for member states to have at least 80 per cent of their gas storage capacity by this winter has been met. According to data from the European Gas Infrastructure Association, many EU countries have good gas storage. Germany, France, Spain and other countries have more than 90 percent of their gas storage capacity.
Elevated inventory levels, coupled with insufficient facilities and limited regasification and transshipment capacity in Europe's gas receiving terminals, have resulted in some gas carriers hovering near several European coasts and congestion at receiving ports.
On the other hand, recent energy efficiency measures introduced by the European Union and the impact of rising gas prices on energy-intensive industries have led to a drop in European gas demand.
Eu member states agreed to reduce gas demand by 15 percent over the average consumption of the past five years between August 1, 2022, and March 31, 2023, as well as to reduce overall electricity demand and peak hour electricity use.
At the same time, rising gas prices have forced the temporary closure of some energy-intensive businesses in Europe, such as aluminum smelters, steel mills and fertilizer plants. In addition, temperatures in many parts of Europe are higher than in previous years, which means that people's demand for heating has been delayed, and the pressure on gas supply in Europe has also been partially eased.
European gas demand is 7% lower so far this year, compared with the average for the same period in 2019-21, according to European think tank Belgium's Brueger Institute for Economic Research. In Italy, a big consumer of natural gas, demand for gas fell by about 10 percent in August and September compared with the same period last year.
With limited capacity to continue pumping gas into storage facilities, more gas is being sold on the spot market, creating a temporary oversupply, says Henning Gloystein, an energy expert at Eurasia Group, a U.S. consulting firm.
Analysts point out that even after the recent decline, European gas prices remain historically high and well above their long-term average. Many experts believe the recent drop in natural gas prices is a temporary phenomenon and that it is too early to say that prices will continue to fall from here.
Ing said the recent weakness in gas prices could lead Europe's energy-intensive companies to bring capacity back on line and demand for gas would then rise again, pushing prices higher. Gas futures for delivery early next year are still trading at around €140 per megawatt hour.
Ben McWilliams, an expert on energy and climate policy at the Brueger Institute for Economic Research, said that while Europe is doing its best to conserve gas, that does not guarantee it will survive the winter. Moreover, even if the gas storage rate reached 100 percent, it would only meet peak demand in Europe for more than two months during the winter.
Jonathan Stern, a gas expert at Britain's Oxford Institute for Energy Studies, also said the test will come when gas storage starts to empty during a cold snap.
James Wardle, head of the European gas research group at consultancy Energy Vision UK, says LNG will hardly fill the gap in Russian gas supplies to Europe. So don't use too much inventory this winter, or it will be hard to meet demand next year.