European natural gas headed for its longest run of weekly declines in more than three years, as demand remains muted even with the fuel increasingly more attractive than coal for power generation.
(Bloomberg) — European natural gas headed for its longest run of weekly declines in more than three years, as demand remains muted even with the fuel increasingly more attractive than coal for power generation.
Benchmark futures, which have slumped more than 50% this year, are set for a sixth consecutive weekly drop. While cheaper gas has opened the door for increased switching from coal in power generation, overall consumption is low as the region recovers from an energy crisis.
“Most European countries have super low power demand at the moment,” said Fabian Ronningen, a power analyst at Rystad Energy AS. “May will be the first full month where gas is much cheaper than coal, maybe we see stronger signs of switching.”
Traders are now watching how the situation evolves in the coming months. High fuel stockpiles and ample supplies of liquefied natural gas have helped to keep a lid on prices. But weather and climate issues remain a persistent factor. Last summer, Europe faced abnormal heat and drought that affected hydro power and some nuclear plants, bolstering the use of fossil fuels.
Demand for gas in power generation was lower than expected last month, even amid a sharp drop in coal burns, Goldman Sachs Group Inc. analysts including Samantha Dart said in a research note.
Combined gas-fired generation in key European Union members has moved closer to seasonal norms in recent days — after being far below that level in April — while coal burns dropped further, according to data from grid group ENTSO-E, compiled by Bloomberg.
To be sure, the spark and dark spreads — which measure the profitability of running gas- and coal-fired plants — still favor coal for the coming winter and into next year, albeit at much lower margins than last year.
Dutch front-month gas, Europe’s benchmark, declined 1.7% to €34.42 per megawatt-hour by 9:37 a.m. in Amsterdam, after touching the lowest level since July 2021 on an intraday basis. The UK equivalent contract fell 1.5%. German power prices for next month edged lower.
“The market is calm due to strong supply, and it will likely take a heat wave either in Europe or Asia to change the picture,” analysts at trading firm Energi Danmark A/S said in a note.
–With assistance from Elena Mazneva.
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