Europe now has so much natural gas that prices dropped below zero


London
CNN business

Europe has more natural gas than it can handle. So much so, in fact, that spot prices briefly turned negative earlier this week.

For months, officials have warned of an energy crisis this winter as Russia — once the region’s largest supplier of natural gas — cut supplies due to sanctions imposed by Europe over its invasion of Ukraine.

Now there are EU gas storage facilities At full capacity, ships carrying liquefied natural gas (LNG) are lining up at ports, unable to unload their cargoes, and prices are falling.

The benchmark European natural gas futures price has fallen 20% since last Thursday, and more than 70% since hitting a record high in late August. On Monday, Dutch gas prices for one-hour delivery — which reflect European market conditions in real time — fell below €0, according to data from the Intercontinental Exchange.

Prices turned negative as a result “An overstretched supply network,” Tomas Marzec-Manser, head of gas analysis at Independent Commodity Intelligence Services (ICIS), told CNN Business.

This is a shocking development for Europe, where households and businesses have been hit by rising prices. one of the most important sources of energy it has had in the last year.

Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, says the unseasonably warm weather is responsible for the drastic change in fortunes.

“We are seeing temperatures in countries like Italy, Spain, France [gas] consumption closer to August and early September [levels]”, he told CNN Business. “Even in the Nordic countries, the United Kingdom and Germany, consumption is below the average for this time of year,” he added.

The European Union has also built substantial buffers against further supply cuts by filling gas storage facilities close to capacity. Stores are now almost 94% full, according to data from Gas Infrastructure Europe. That’s it Blocks well above the 80% target set by the country to reach by November.

“This is a very high level,” Di Odoardo said, noting that maximum storage levels averaged 87% of capacity over the past five years.

Europe’s efforts to secure as much fuel as possible ahead of winter has led to a backlog of LNG ships in European ports, worsening a shortage of LNG import terminals.

The bloc has increased LNG imports from the United States and Qatar as natural gas imports from Russia have fallen.

Felix Booth, head of LNG at data firm Vortexa, told CNN Business that about 35 vessels are floating to ports in northwest Europe and the Iberian Peninsula or are sailing very slowly because of a lack of storage options.

Those ships “will probably take another month for the cargo to find a home,” he said.

Together, about $2 trillion of LNG is being transported, according to Kpler, citing energy market data provider Argus Media.

Despite the recent decline, around European natural gas futures at 100 euros ($100) per megawatt hour are still up 126% from where they were in October last year, when economies began to reopen from pandemic lockdowns and demand picked up.

Prices can rise sharply again in December and January as the weather turns colder, giving some of those ships an incentive to wait a little longer at sea before coming into port to unload, Booth said.

And while Russia’s share of total European gas imports has fallen from 40% to 9%, the region could be in a tough spot next summer as it tries to fill stores ahead of next winter.

Prices are expected to reach 150 euros ($150) per megawatt hour by the end of 2023, said Bill Weatherburn, commodities economist at Capital Economics.

“Storage ahead of next winter will require the EU to import even more LNG as lost Russian gas imports need to be replaced throughout the year,” he told CNN Business.