Mild weather and near-full storage see gas prices tumble

Mild October weather and the filling of storage across Europe have seen gas prices tumble in recent weeks following the extreme highs seen towards the end of last month.

At the peak on 28 August, month-ahead National Balancing Point contracts were trading at 597p/therm, whilst winter-ahead contracts were selling at more than 715p/therm.

Since then, prices have dropped by more than half with month-ahead contracts trading at around 177p/therm on Monday (24 October) and winter-ahead contracts at 343p/therm, according to price reporting firm ICIS.

Earlier this year, the EU set a target for all members states to fill gas storage facilities to at least 80% of their capacity by the beginning of November.

With the high gas prices drawing in liquefied natural gas (LNG) shipments from across the world, in particular from the US, storage levels across the EU reached 80% by the end of the August and as of Sunday stood at almost 94%.

Meanwhile, warm temperatures for the time of year have diminished gas demand for heating.

“Near-term gas prices have been crashing off since the late August peak, when the Russian Nord Stream pipe went on maintenance, and then failed to restart flows again afterwards,” said ICIS gas and LNG analyst Alex Froley.

“Although there has been reduced Russian gas, Europe has made good progress on its storage targets, and October has seen some unusually warm weather for the time of year, suppressing heating demand. This has sent the month-ahead gas price tumbling, although it’s still about four times the more ‘normal’ levels of first half 2021.”

Speaking to Utility Week, Froley said Europe is by no means out of the woods: “While the near-term looks a little more comfortable, there’s still a lot of winter left, and the market is increasingly wondering how storage will be refilled in summer 2023 in time for the winter afterwards.

“Europe received a lot of Russian gas during 2022, but there could be far less in 2023. While high-priced LNG helped fill the gap in 2022, next year the gap could be too big even for LNG to fill.

“This means that the forward curve has not dropped as much as the next month, and winter 2023 gas remains stronger, still priced about seven times the levels of early 2021.”

With the chancellor Jeremy Hunt having announced an early end in April to the Energy Price Guarantee brought in by former prime minister Liz Truss, Froley said there could be “some challenging times ahead for consumers next year.”