Brussels February 28 2023: Natural gas prices in Europe have already lost nearly 40% in the first two months of the year after Europeans saved the fuel like never before in history.
Benchmark futures increased slightly on Tuesday, but still headed for a monthly drop of more than 15%. Prices have been falling for three consecutive months, the longest streak since May 2020.
Plunging gas costs — which should help Europe rein in inflation and soaring energy bills — come after sweeping efforts among households and companies to cut fuel use during a mostly mild winter. The region’s gas demand plunged by 13% in 2022 — the steepest drop on record — the International Energy Agency said in a quarterly report released Tuesday.
“Prices are returning to manageable levels, particularly in Europe, where a mild winter and demand destruction have helped to cool markets,” said Keisuke Sadamori, the IEA’s Director of Energy Markets and Security.
Heating needs are likely to remain limited as Europe approaches the end of winter, with temperatures in the northwest of the continent set to rise and go back to normal by mid-March. Forecasts show a freeze is expected to linger in the north over the next days.
The IEA warned that Europe’s favorable demand picture could change this year as demand for liquefied natural gas picks up in Asia, particularly in China, increasing the competition for cargoes. China’s strict Covid restrictions curbed the country’s energy use last year, leaving room for Europe to import record amounts of LNG and fill up storage sites.
Now that restrictions are lifted, Chinese demand is the “big unknown,” and a bullish scenario could see the country’s LNG imports surge as much as 35% in 2023 if costs fall further and its economy expands quickly.
“This would spark fierce competition in international markets and could see prices return to the unsustainable levels seen last summer, representing a concern for European buyers in particular,” said the agency.
Benchmark Dutch front-month gas increased 1.3% to €48 per megawatt-hour at 9:21 a.m. in Amsterdam.
