European natural gas prices drop back to pre-Ukraine war level

European natural gas prices have fallen to levels last recorded before Russia’s full-scale invasion of Ukraine in February, as warmer weather helps the continent to preserve its reserves.

The Dutch TTF gas future for the coming month, the benchmark European contract, dropped as much as 7.4 per cent on Wednesday to €76.78 per megawatt hour — its lowest level in 10 months, according to data from Refinitiv. That price was last logged just before Russia launched its attack on Ukraine.

However, the price later rebounded to trade 2.8 per cent down on the day, at €80.55.

Moscow’s weaponisation of the commodities it sells Europe, combined with record-breaking temperatures, helped push gas prices to more than €300 per megawatt hour over the summer. In an effort to stem rising prices, the EU has implemented a series of measures including mandatory gas storage and consumption reduction targets.

The latest fall comes after warmer than usual temperatures across north-west Europe, which are expected to linger into the new year. As the warm weather reduces heating demand, Europe has been able to build up its gas inventory again after drawdowns from mid-November, including during the cold snaps in the early weeks of December.

Since Christmas Eve Europe has been sending more gas into its storage facilities than it has taken out of them, with storage levels increasing 0.28 per cent to Monday. Capacity stood at 83.2 per cent full as of December 26 — down from the mid-November high of 95.6 per cent, according to industry body Gas Infrastructure Europe.

The current level is 30 per cent higher than the same period last year, when Europe had unusually low levels of storage, and about 10 per cent higher than the average of the previous five years.

Reduced demand for gas has also helped inventories, with the region cutting its requirements by about a quarter compared with the five-year average in November, following a similar fall in October.

Analysts warn that Europe will be in a difficult position when trying to restock its gas inventory next year, when the volume of gas supplied from Russian pipelines will be considerably lower and the liquefied natural gas market, which the region has depended on this year, remains tight.

“To build gas inventories for next winter Europe will still need to consider what to do about its demand, lower Russian pipeline gas imports, and more competition for LNG as the Chinese economy emerges from the pandemic,” said Glen Kurokawa, power sector lead at consultancy CRU.

“If the TTF gas price continues to be lower, there may be some upward revision in European industrial gas use” such as for ammonia production, he said. “However, any increase could be limited because industrial production costs will remain very high . . . European gas demand will likely remain generally pressured on a year-to-year basis in early 2023.”

European countries have been working on a package of measures to prevent energy prices spiking as they did in the summer. Before Christmas EU ministers reached an agreement to cap gas prices in the bloc when they hit €180 per megawatt hour for three days and sit at €35/MWh or more above global LNG prices.