European natural gas fell further from the lowest level in 16 months as supply remained plentiful and demand muted despite lower prices.
(Bloomberg) — European natural gas fell further from the lowest level in 16 months as supply remained plentiful and demand muted despite lower prices.
Benchmark futures lost as much as 7.3%, after rising 4.6% on Tuesday. That prices are declining even in the middle of a ongoing cold spell shows how dramatically the market has turned in the past month, and taken pressure off politicians and central bankers as inflation eases. Gas inventories are fuller than normal at more than 80%, and liquefied natural gas imports remain strong.
Mild temperatures are forecast to return next week, keeping demand in check. Europe’s gas consumption in the year to October will probably be 16% below the five-year average, Morgan Stanley estimated earlier this month. There’s little indication that falling prices are quickly bringing back gas use.
“Even if it makes gas-fired power plants increasingly competitive with coal-fired power plants, it does not lead to an increase in gas demand for power generation because” other cheaper electricity sources will be used first, Engie SA’s EnergyScan said in an emailed note.
Dutch front-month gas futures, Europe’s benchmark, were 4.2% lower at €53.11 a megawatt-hour at 10:46 a.m. in Amsterdam. They fell to the lowest level in 16 months on Monday. The UK equivalent contract declined 2% on Tuesday.
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China Focus
Traders will focus closely on China’s economy and the prospects for a recovery in gas demand that could pull key LNG cargoes away from Europe. The Asian nation’s gross domestic product rose 3% last year, far lower than the 8.4% in 2021, but above economists’ forecasts. It also beat expectations in the final quarter of the year.
BloombergNEF estimates that China’s total gas supply this summer will be 9% more than a year earlier, with the biggest jump coming from LNG. Others in Asia, such as India and Thailand, are also rapidly returning to the LNG market to take advantage of lower prices.
“China’s demand is definitely going to rebound, but whether it’s going to reach the peak of 2021, there seems to be some doubt,” Rob Butler, a partner at law firm Baker Botts LLP, said in an interview. “The general consensus is it will rebound but probably not as high as it was previously.”
CHINA REACT: GDP Beat Still Leaves Hole for Recovery to Fill
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