European natural gas prices fluctuated as the market weighed a mixed outlook for demand against supply risks including outages and competition with Asia for LNG.
(Bloomberg) — European natural gas prices fluctuated as the market weighed a mixed outlook for demand against supply risks including outages and competition with Asia for LNG.
Benchmark Dutch futures traded near €40, with the contract set to decline for a third consecutive week.
Industrial demand for the fuel has been muted in recent months, as the region recovers from a historic energy crisis. An influx of liquefied natural gas has also helped to keep stockpiles about 57% full on average, well above usual for the time of year.
Weak demand, high inventories and near-record LNG imports have helped to keep prices in the current range, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S.
“The combination of these developments has left the market wondering whether EU storage sites can be filled before September, a development that potentially could send spot prices even lower” he added.
Still, there are short-term risks. Norway’s giant Troll field is expected to reduce supplies starting this weekend due to seasonal maintenance, according to network manager Gassco AS. A day before, it reported that works — with the same duration but starting two days later — were canceled.
Separately, a forecast for cooler weather in northern Europe could boost heating demand. Competition with Asia for LNG also remains in focus.
India is looking to procure more of the fuel from abroad as a heat wave pushes the nation’s power demand to record levels. Several companies have issued tenders this week, and some of that gas will go to power generation, according to traders with knowledge of the matter.
Coal-to-Gas Switching
Cheaper gas and more expensive coal prices have incentivized burning gas in power generation.
So-called dark spreads — the margin for utilities to generate electricity from coal — have moved into negative territory, due to a weak power and gas complex in Europe, according to Alex Claude, chief executive officer of analytics firm DBX Commodities. This is “keeping the demand for coal at low levels,” he said.
Germany, Europe’s largest economy, saw gas demand for power up 5% in March, compared to the 2019-21 average, think tank Bruegel said in a report this week.
Meanwhile, German coal usage for power generation is set to fall by 2.7% from January through July, compared with last year, according to consultant Perret Associates Ltd.
Dutch front-month gas, Europe’s benchmark, fell 1.2% to €40.10 per megawatt-hour by 3:28 p.m. in Amsterdam. The UK equivalent rose 0.9%.
Rotterdam coal futures for next year advanced 2.7%, a fourth consecutive increase. German power for next month declined 1.5%.
–With assistance from Elena Mazneva, Todd Gillespie and Anna Shiryaevskaya.
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