Decline in Europe Natural Gas Prices by 4.4%, Yet Positive Forecasts Emerge

Rotterdam (Netherlands): Natural Gas prices in Europe have changed gear, moving again towards downward directions in the week ending October 6. High storage levels due to carryover from mild winter in the fiscal year 2022-23 and current weak heating demand have cut the Natural Gas prices in Europe.

As of October 2, 2023, Natural Gas storage across Europe has registered 96% volume filled, above the 5-year average for this season. Natural Gas storage in the U.S. also has registered a volume 5% above their five-year seasonal average as of September 29 on a Y-O-Y basis; Natural Gas inventories have been up by 10.1 percent, as per EIA data. Natural Gas on September 29 has been trading at around 39.74 euro per MWh, while the prices have been closed on October 6 at 37.99 euro per MWh in Hamburg, Germany.

In the previous week, the Natural Gas prices in Europe have continued the upward trend due to surrounding concerns about Natural Gas supply and winter demand. The British and Dutch Natural Gas futures have risen to the highest level in the week ending September 29 since mid-June. It has to be noted that though Norway's gas field Troll has started its operations post-maintenance, a temporary stoppage in the SKarv field has been extended by six more days till October 8. That heightened concerns about Natural Gas shipments for upcoming winters in European Union countries.

Meanwhile, decreasing freight charges in the Asia-Europe route have weighed down the Natural Gas prices in the week ending October 6. Hiring activity in Germany's manufacturing sectors has reflected its lowest level since February 2021, since the country has struggled with an energy crisis and surging borrowing costs. Due to the sluggish economy, regional investors have preferred investing in China rather than its domestic market. Furthermore, Europe's largest economy has been projected to shrink by 0.4% annually, compared to the 0.2% growth forecast by the European Commission.

However, markets have also been cautiously eyeing supply shortages caused by Black Sea tensions. Escalation of military actions targeting gas supply pipelines to Europe has been expected to put upward pressure on Natural Gas prices further in the coming winter. Also, Russia's ban on gasoline and diesel exports further lifted the market's concerns about the possibility of a similar banning on Natural Gas exports. Moreover, a potential cold winter might lead to additional demand in European residential and industrial sectors.

Moreover, the Israel-Hamas conflict can add extra shipping charges to the cargoes transporting goods through the Suez Canal. Most private shipping companies have already started charging premiums to shipments from Asia to Europe and vice versa. This might contribute to Natural Gas prices to soar in upcoming weeks.