Natural gas prices drop for fourth straight week

Natural gas prices drop for fourth straight week

As abundant supplies of natural gas help countries fill reservoirs ahead of the start of the heating season, natural gas prices in Europe went for a fourth weekly loss.

Dutch front-month gas, the European benchmark, declined as much as 6%, and is on pace for a drop of about 5% this week. The prices have been a bit less recently, but they are still six times higher than normal for the time of year.

Europe is trying to relieve an unprecedented energy crisis sparked by Russia's invasion of Ukraine and subsequent supply cuts after sanctions against Moscow. Countries across the region are hoarding gas and enacting emergency measures ahead of the heating season, which begins on October 1.

The continent's gas storage sites are about 87% full. Four more US LNG cargoes signaled northwest Europe as a destination, with three expected to arrive in early October, according to ship-tracking data compiled by Bloomberg.

The European countries have been able to deal with the crisis by importing LNG. All eyes are now on the severity of the winter and the response to energy demand in the face of limited gas.

A senior analyst at Switzerland-based electricity provider Alpiq AG, said on the sidelines of a conference in Duesseldorf, Germany that gas balances will have to rely on demand destruction and strong LNG supply.

Germany, the largest gas consumer in the region, is hoping to secure more supplies from the United Arab Emirates in the coming days when Chancellor Olaf Scholz visits the country.

Economy Minister Robert Habeck has urged lawmakers to back a massive rescue package for companies struggling with soaring costs. The government decided to nationalize its largest gas importer, Uniper SE, earlier this week.

Demand destruction is expected to continue despite elevated prices. Volkswagen AG said on Thursday that it is possible to reallocate production around its network of global facilities in the medium term if a shortage of natural gas persists beyond this winter.

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Dutch front-month futures dropped 4.3% to 179.50 euro per megawatt-hour by 3: 03 p.m. in Amsterdam. The UK equivalent fell by 4.8%. German year-ahead power fell by 6.7%.

Weather forecasts point to above-normal temperatures and moderate wind generation in northwestern Europe in the first week of October, easing demand concerns, according to the Weather Co.

Europe's gas market is sensitive to any potential disruptions after Russia has reduced flows in the fallout over its war in Ukraine.

President Vladimir Putin called up as many as 300,000 reservists this week, a major escalation of the conflict. Russia's security service also thwarted a planned Ukrainian attack on infrastructure delivering energy to Turkey and Europe, a claim that Kyiv denied.

In the coming months, LNG flows to Europe could decline as consumption in Asia increases. There is an outlook for colder weather in Japan this winter, which may cause some utilities to secure additional spot shipments, adding upward pressure to prices, according to traders. Asian LNG spot rates are currently three times higher than the 10 year average.