EUROPEAN GAS PRICES DOWN AGAIN

BLOOMBERG - Oct 17, 2022 - Natural gas prices fell as the European Union prepares measures to curb volatility in its biggest marketplace in an attempt to rein in the energy crisis.

Benchmark futures dropped as much as 7% to the lowest level in more than three months. The European Commission plans to propose a temporary mechanism to prevent extreme price spikes in derivatives trading through a dynamic limit for transactions on the Dutch Title Transfer Facility, according to a draft document seen by Bloomberg News.

The market has been sensitive to the EU’s interventions to contain the effects of the crisis that has fueled inflation and put economies on the brink of recession. The bloc’s executive arm is due to propose a package on Tuesday to alleviate the impact of Russia’s steep supply cuts on companies and consumers. The plan will be discussed by EU leaders at their summit on Oct. 20-21 in Brussels.

The EU has already asked members to voluntarily reduce gas demand by 15%, and Energy Commissioner Kadri Simson has said a plan is under consideration to make the cut mandatory. She warned over the weekend that measures to limit gas prices must not hinder efforts to curb demand, a view shared by analysts from Morgan Stanley to Citigroup Inc.

Europe’s gas storage facilities are about 92% full, above the five-year average for the time of the year, helped by mild weather and high levels of liquefied natural gas. But failure to cut consumption and colder-than-normal weather could could deplete the reservoirs quickly and make it much harder to replenish them next year, particularly without the usual volumes of Russia gas.

Mild Weather

“Several countries in Europe announced that the supply picture is healthy ahead of the upcoming winter, while mild and windy weather means that demand has not really started to rise yet at this point of time,” said Energi Denmark in a note.

Dutch front-month gas, the European benchmark, was 5.7% lower at 133.89 euros per megawatt-hour, the lowest intraday level since June 29, as of 10:10 a.m. in Amsterdam. The UK equivalent contract fell 4.3%.

Still, the escalating war in Ukraine continues to bring the risk of disruption to gas supplies that pass through the country. Central Kyiv was hit by explosions early Monday after Russia used kamikaze drones, according to the Ukraine president’s chief of staff Andriy Yermak. For now, transit flows remain stable, albeit at the reduced levels of the past few months.

Traders have also been keeping an eye on liquefied natural gas flows, on which Europe is becoming increasingly dependent. China told its state-owned gas importers to stop reselling LNG to Europe in order to ensure its own supply for the winter.

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