European gas prices continued to fall on Thursday, resuming a recent sell-off as unusually mild weather dampened demand and new fuel shipments hit the region.
In the thin holiday trade, gas futures in connection with TTF, the European wholesale gas price, fell by up to 12 percent to € 84.90 per megawatt hour when tankers carrying liquefied natural gas – originally destined for Asia – arrived in Europe.
These ships were Redirected at the beginning of the month from dealers to collect record prices, which climbed over € 180 per megawatt hour in the run-up to Christmas due to the dwindling trust in the additional Russian offer.
Alex Froley, LNG analyst at consulting firm ICIS, said gas tanker LNG Rosenrot left the United States on its way to China, but instead changed direction on Thursday and headed for the Netherlands.
“Mild weather and increased LNG flows have helped bring prices down over the past week,” he said. “However, if there are cold weather periods in Europe or Asia in the remaining winter months, the market could pick up again.”
In the UK, the wholesale price of gas fell 10 percent on Thursday to 210 pence per therm, extending losses from last week’s record high of 450 pence per therm to more than 50 percent.
Despite the decline, European gas prices are still up more than 350 percent this year, adding to energy bills for households and industries across the continent and adding to inflationary pressures.
Kaushal Ramesh, senior analyst at Rystad Energy, said the market in Europe was “more balanced” as at least 800,000 tons of LNG were diverted from Asia to Europe across 11 tankers.
He said, however, that gas markets are “not out of the woods” as flows on a major pipeline between Russia and Europe have been reversed for a week and a half.
“LNG diversions from Asia are a useful stopgap solution, but not a sustainable substitute for a stable pipeline supply,” he said.
More than a third of the EU’s gas supplies come from Russia via pipelines, but inflows have declined this year. Russia’s state-run Gazprom has refused to sell additional quantities to Europe beyond the long-term contracts.
Some European politicians and industry experts have accused Russia of withholding supplies to push EU leaders to approve the controversial new pipeline Nord Stream 2.
Gazprom has repeatedly denied these claims. At the weekend, the company described the allegation of low gas deliveries to the EU for price manipulation as “lies and untruths”.
In addition to the mild weather, gas demand was also dampened by the fact that some of the largest energy consumers in Europe cut production in factories and smelters due to rising electricity prices.
On Wednesday, the US industrial group Alcoa announced that it would suspend primary aluminum production in its San Ciprian smelter in Spain for two years due to high energy costs. For the same reason, Norsk Hydro announced on Thursday that it would reduce the capacity of a plant in Slovakia to around 60 percent.
With gas storage capacities across Europe well below the seasonal average, traders expect gas and electricity markets to remain volatile in the months ahead.
Germany is well on its way to shutting down three of its last six nuclear power plants on Friday while converting to renewable energy, while France could face power shortages in the event of a cold snap next month, when a large number of nuclear reactors are shut down for maintenance on electricity grid operators of the country warned on Thursday.
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