Europe has more natural gas than it can handle. So much so that spot prices briefly turned negative earlier this week.
For months, officials have been warning of an energy crisis this winter, as Russia — once the region’s biggest supplier of natural gas — cut supplies in retaliation for sanctions imposed by Europe over its invasion of Ukraine.
Well, EU gas storage facilities are almost full, liquefied natural gas (LNG) tankers are queuing in ports, unable to unload their cargo, and prices are falling.
The price of benchmark European natural gas futures is down 20% since last Thursday and more than 70% since hitting a record high in late August. On Monday, Dutch spot gas prices for hourly delivery – which reflect real-time European market conditions – fell below €0, according to the Intercontinental Exchange.
Prices were negative due to “Oversupplied grid,” Tomas Marzec-Manser, head of gas analytics at Independent Commodity Intelligence Services (ICIS), told CNN Business.
It’s an extremely surprising turn of events for Europe, where homes and businesses have been hit by staggering price increases one of its most important sources of energy in the past year.
Massimo Di Odoardo, Wood Mackenzie’s vice president of gas and LNG research, says unusually mild weather is largely responsible for the dramatic change in assets.
“In countries like Italy, Spain, France, we see temperatures and [gas] Consumption closer to August and early September [levels]’ he told CNN Business. “Even in the Nordic countries, the UK and Germany, consumption is well below the average for this time of year,” he added.
The European Union has also built up significant buffers against further supply shortages by filling gas storage facilities almost to capacity. Deals are now almost 94% full, according to data from Gas Infrastructure Europe. That is well above the 80% target that bloc countries aim to reach by November.
“That’s an extremely high level,” Di Odoardo said, noting that the maximum storage level has averaged 87% of capacity over the past five years.
Efforts by Europe to secure as much fuel as possible before winter has resulted in a backlog of LNG tankers in European ports, made worse by a shortage of LNG import terminals.
The bloc has increased imports of LNG from the United States and Qatar as natural gas imports from Russia plummeted.
Felix Booth, head of LNG at data firm Vortexa, told CNN Business that as many as 35 ships are either floating near ports in north-west Europe and the Iberian Peninsula or are very slowly heading towards the ports due to a lack of storage facilities.
Those ships will “probably take another month to find the cargoes home,” he said.
Together they transport about $2 billion worth of LNG, according to Kpler, citing energy market data provider Argus Media.
Despite the recent slump of around European natural gas futures are still up 126% at €100 ($100) per megawatt-hour from last October, as economies began to reopen from their pandemic lockdowns and demand surged.
Prices could rise sharply again in December and January as the weather turns colder, giving some of these tankers an incentive to wait a while longer offshore before entering port to unload, Booth said.
And despite the fact that Russia’s share of Europe’s total gas imports has fallen from 40% to just 9%, the region could be in a difficult position next summer as it tries to replenish supplies ahead of the following winter.
By the end of 2023, prices should reach 150 euros per megawatt hour, said Bill Weatherburn, commodities economist at Capital Economics.
“Filling the storage facilities before next winter will require the EU to import even more LNG as it will have to replace lost Russian gas imports for a full year,” he told CNN Business.