European Gas Prices Extend Weekly Slump as Winter Weather Fades

European natural gas futures posted their biggest weekly drop this year as milder weather curbs demand and supply concerns ease.

(Bloomberg) — European natural gas futures posted their biggest weekly drop this year as milder weather curbs demand and supply concerns ease.

Benchmark front-month contract settled 3.4% lower on Friday after a volatile session, slumping 19% for the week. Day-ahead prices also fell.

Above-normal temperatures are forecast in northwest Europe next week as the heating season nears its end. That will ease pressure on storage sites, which typically switch to net injections in early April. Fuel inventories are now about 56% full, meaning less gas than usual will need to be replenished over the summer. 

While widespread strikes continue to disrupt energy facilities in France — a major contributor to a spike in prices last week — one of the four terminals to import liquefied natural gas resumed operations on Friday, calming some nerves.

In addition, France’s most recent nuclear woes appear not to have shaken confidence in output expectations. Electricite de France SA this week said it would keep its French nuclear power production forecast for 2023 unchanged, even as it expands its inspection program following the discovery of a new crack on a pipe at one of its reactors. 

Meanwhile LNG continues to arrive at European terminals at levels that are higher than usual for the time of the year — despite US shipments being more profitable to Asia than Europe in May, June and July. That’s even after the French strikes, which started last week, diverted vessels to other ports in northwest Europe.

The labor action at France’s Dunkerque LNG ended early Friday, although three other terminals remain blocked after the strike there was extended until March 21.

EUROPE GAS OUTAGES: Dunkerque LNG Resumes; Montoir Still Blocked

A rally in European gas prices following the news of EDF issues is “potentially overdone if French nuclear generation is still up year-on-year in 2023,” consultancy Energy Aspects Ltd. said in a note. And while upside risks on non-European LNG demand are materializing, they are offset by weak Chinese growth, it said. 

Dutch front-month futures, Europe’s gas benchmark, closed at €42.86 a megawatt-hour. The UK equivalent settled 4.8% lower at 103.97 pence a therm, dropping 22% for the week, the most since late December.

LNG arrivals are also strong in Britain. In addition, wind generation is expected “consistently above average levels until the end of March,” analysts at UK supplier SEFE Energy Ltd. said in a note.

–With assistance from Elena Mazneva.

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