The weather is favorable to Europe, at least for the time being. The relatively mild weather, which according to the weather models will last for at least another two weeks, means that the demand for gas is not too bad. And that is clearly reflected in the price.
Last week, natural gas was still well above €80 per MWh on the TTF. This week the TTF has started its downward trajectory. When writing this article on January 4, before the market closed, the quote was €67,01 per MWh. This brings the price back to the level before the Russian invasion of Ukraine on February 24 last year.
According to analysts, the mild weather plays a major role in the drop in gas prices. Above-average temperatures are forecast in Europe until the middle of this month, which will help curb gas demand. In addition, a successful supply of LNG will provide some peace on the market. The filling level of European storages also reinforces the feeling that an acute gas crisis has been averted this winter. On January 2, the stores were on average 83,5% full, compared to the five-year average of 70% for this period.
Gas supply not entirely certain yet
Yet several experts warn that winter is certainly not over yet and the mood could change again. In recent months, Europe has purchased LNG on the spot market at very high prices, while there was also some supply of gas from Russia. Russia is increasingly turning off the gas tap and the available reception and processing capacity for the supply of LNG has been almost fully utilized. There is therefore not much room to supply extra gas, if, for example, it really becomes winter in February or March. In addition, it is expected that with the relaxation of the corona measures in China, the demand for LNG on the global market will also increase again.
This concern about the availability of gas is also reflected in the futures market. For this winter, the contracts are around €70 per MWh, which is reasonably in line with the daily rate of the first contract on the TTF (March 2023). The market seems a little less certain about the availability of sufficient gas for next winter. The November 2023 contract is currently the highest at €78 per MWh. Almost all contracts for winter 2023/24 are still above €75 per MWh. For the summer of 2024, the TTF is still around €70 per MWh. Only in the summer of 2025 will the TTF show a significantly lower quotation at €54,40 per MWh, and for 2026 the price is €40,65 per MWh. Hardly any trading takes place in these contracts, which are relatively far in the future. These are significantly lower prices, especially if you compare it with the peak in the gas price in August 2022, which was well over €300 per MWh. But until two years ago, gas prices well below €20 per MWh were no exception.