Risk Center

EU to exit winter with enough gas, prices remain high

Fears of widespread energy disruptions across the EU are subsiding as the continent prepares to enter the final month of the 2022/23 winter season with healthy gas stores and lower gas prices.

On February 2, EU regulators announced that the LNG reference price cap will be triggered if gas prices are at least €35/MWh higher than the LNG reference price and if front-month gas prices on the TTF surpass €180/MWh for three days. However, it appears increasingly unlikely that the measure will be enforced this winter season given that current front-month gas prices are nowhere near the €180/MWh mark needed to trigger the cap.

Nevertheless, gas prices are poised to increase slightly in the near-term due to colder temperatures that have been forecasted for southern and central Europe, with benchmark future prices expected to see their biggest increase since last December. Prices could also be pushed higher in the medium- to long-term due to increased LNG demand from China.

Metals manufacturers continue to benefit from low gas prices as more companies have begun to restart idled furnaces. Other companies are still forced to cut production to address rising costs at their facilities.

Gas storage levels remain sufficient despite colder weather

Colder temperatures in north-western Europe since the middle of January have caused the continent’s overall gas supplies to decline at a quicker pace compared to the first half of the winter season. However, gas stores continue to remain healthy as temperatures across the continent remained unseasonably warm on average.

In Germany, gas usage was lower than the average usage levels during the same time between 2018 and 2021. This prompted the national network regulator to warn that the country had failed to meet its natural gas savings targets over the last two weeks. However, gas supplies in Germany are still far above the government’s initial target for February 1, meaning that there is no imminent danger of shortages despite the uptick in demand.

French natural gas stores declined over the past two weeks as the country continues to face challenges repairing its aging fleet of nuclear reactors. French nuclear output remained lower than the five-year average on February 3 and capacity is expected to fall even further as another eight reactors are scheduled to go offline this month for repairs. Additionally, French nuclear output has also been affected by a series of nationwide general strikes against a planned pension reform, with at least seven nuclear power plants reporting drops in power production due to strikes by EDF technicians.

Winter weather remains unseasonably warm

Temperatures have been unseasonably warm throughout much of this winter season, which has suppressed heating demand and significantly reduced the risk of energy supply shortages in Europe.

For example, January is normally the coldest month of the year and thus the month with the highest heating demand, but demand remained well below normal levels. As of February 6, heating demand in Europe is running below the 10-year normal which is the third lowest demand of any year (through February 5) since 2000.

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