European energy prices jump with impending cold days expected to boost demand

[LONDON] Energy prices in Europe surged on Monday after weather forecasts showed colder temperatures for the next two weeks that will lift demand for heating.

Benchmark Dutch natural gas for next month climbed as much as 9.7 per cent, German month-ahead power surged 11 per cent and carbon futures jumped to a record. Widespread below-average temperatures are seen through most of Europe for the next two weeks with the lowest levels expected in the Nordic region, said Maxar Technologies.

As winter approaches, energy markets are set to get increasingly sensitive to the prospect that consumption will increase amid lower temperatures in the northern hemisphere. European gas prices have been under pressure since demand recovered during the summer and new supplies have dried up, with more liquefied natural gas diverting to Asia and Russia focusing on filling up its own storage sites.

"Given how tight the gas balance looks presently, any significant period of cold below the seasonal average would likely push forecasts for end-of-season gas inventories toward critical levels, driving prices higher," said Stefan Ulrich, a gas analyst at BloombergNEF. "If the winter turns out to be particularly cold, we could not rule out further extraordinary measures to calm the gas and by extension power markets."

A bitterly cold blast, which moved in from the Arctic at the weekend and was still being felt on Monday, is expected to ease throughout the week. The chill is pushing up short-term power prices in Germany and France to near-record levels. Carbon for December delivery jumped to a record 75.74 euros (S$116.94) on ICE Endex.

The fundamentals for carbon are bullish, said Redshaw Advisors Ltd. The key downside is the risk of further lockdowns being rolled out to prevent the spread of coronavirus, which would impact industrial demand for emissions permits.

BLOOMBERG