European gas slips as stronger wind forecast adds to low demand

European natural gas prices slid further after closing at the lowest level in almost 22 months, as forecasts for a rebound in wind generation add to an already sluggish demand outlook. 

Wind output in the UK is expected to increase from Friday (May 12) and early next week, following a slump that supported British prompt gas prices in the past few days. The growing fleet of wind farms in the country – along with continental Europe – has already helped to cut gas consumption. 

European gas prices have dropped more than 50 per cent this year, due to factors including strong imports of liquefied natural gas, high fuel stockpiles after a mild winter and relatively muted demand in rival Asian markets. Yet the possibility of abnormal heat and drought this summer remains a major short-term risk, and traders are closely watching weather forecasts. 

“Storage sites are filling up rapidly, and with demand from Asia not as strong as expected it has become a buyer’s market,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank. 

“With the 2023 to 2024 winter contract still stuck around 55 euros (S$80) in anticipation of strong demand, the storage arbitrage is wide open,” he added. That supports “a speedy refilling of storage sites, with relatively cheap gas that can be stored and sold at higher prices during winter”.

UK wind generation was relatively low on Thursday – about 2.5 per cent of total power generation, compared with 68 per cent from gas, grid data showed – though a rebound is forecast in the coming days. 

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Britain had an exceptionally blustery winter, with wind generation in the first quarter exceeding output from gas-fired power stations for the first time on record, according to Drax Electric Insights. 

Meanwhile, there is a greater than 60 per cent chance that temperatures across Spain, France and Italy will be well above average from June to August, according to an outlook from the Copernicus Climate Change Service. That could mean higher fuel demand to power air-conditioning, just as energy companies try to replenish gas inventories ahead of the winter.

Dutch front-month gas, Europe’s benchmark, declined 0.9 per cent to 34.68 euros per megawatt-hour by 9:39 am in Amsterdam. The UK equivalent contract fell by 0.8 per cent. Bloomberg