# Factbox-European gas prices: why have they been falling? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-26 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: European Gas Prices Decline: Reasons and Forecast Meta Description: Discover why European gas prices are dropping, including factors such as mild weather and strong supply. Find out if prices will stay low. URL: https://financedigest.com/factbox-european-gas-prices-why-have-they-been-fallinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-26t120317z1lynxmpei9p0fmrtroptp4ukraine-crisis-eu-gas-1736814969760-compressed.jpg) By Nina Chestney LONDON (Reuters) – European benchmark gas prices have been steadily declining over the past few months to near their levels before war broke out in Ukraine. \[NG/EU\] Europe has been facing an energy supply squeeze this year as Russia has cut gas flows after the West imposed sanctions in response to its invasion of Ukraine in late February. WHY HAVE GAS [PRICES BEEN FALLING](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") RECENTLY? Despite dwindling Russian gas [pipeline supplies](https://www.financedigest.com/keystone-oil-pipeline-restart-timetable-unclear-traders-worry-about-supply.html "Keystone oil pipeline restart timetable unclear; traders worry about supply"), Dutch front-month gas, the European benchmark, has fallen 67% since hitting an all-time high in August to around 100 euros per megawatt hour and is at the lowest level since mid-June. The [price is 12.6% higher than this time last year](https://www.financedigest.com/germany-home-prices-to-sink-nearly-6-this-year-reuters-poll.html "Germany home prices to sink nearly 6% this year – Reuters Poll"). Although the winter gas season began in early October, when heating demand typically rises, [Europe has experienced](https://www.financedigest.com/europe-experienced-second-warmest-winter-on-record.html "Europe experienced second-warmest winter on record") milder weather than usual for the time of year, which has helped dampen demand. The [European Union as a whole also met a target](https://www.financedigest.com/chinese-carmakers-target-more-european-sales-with-five-star-evs.html "Chinese carmakers target more European sales with five-star EVs") for refilling gas storage sites to 80% by Nov. 1 ahead of time. Storage facilities are currently 93% full, compared with 77% this [time last year](https://www.financedigest.com/world-food-prices-rise-for-first-time-in-a-year-fao.html "World food prices rise for first time in a year- FAO"), Gas Infrastructure Europe data shows. Liquefied natural gas (LNG) supply and Norwegian [pipeline](https://www.financedigest.com/oil-edges-up-on-u-s-pipeline-restart-uncertainty-russian-supplies.html "Oil edges up on U.S. pipeline restart uncertainty, Russian supplies") supply have been strong. As of last week, [LNG imports into Europe](https://www.financedigest.com/uniper-chief-says-flexible-duration-lng-contracts-key-for-europe.html "Uniper chief says flexible duration LNG contracts key for Europe") totalled 2.81 million tonnes, according to Nikoline Bromander, an analyst at consultancy Rystad Energy. Added to that, wind [power output has been quite high, which reduces demand for gas from power plants](https://www.financedigest.com/edpr-brings-iberias-first-wind-solar-power-plant-on-stream.html "EDPR brings Iberia’s first wind-solar power plant on-stream"). Agreement among EU [countries to cooperate on reducing prices](https://www.financedigest.com/netflix-cuts-prices-in-some-countries-to-boost-subscriptions-shares-drop.html "Netflix cuts prices in some countries to boost subscriptions, shares drop") and consumption have also contributed. The European Union’s debate on measures to rein in the cost of the fuel has also put [pressure on prices](https://www.financedigest.com/oil-prices-dip-on-u-s-crude-reserve-release-inflation-pressure.html "Oil prices dip on U.S. crude reserve release, inflation pressure"), according to analysts, including their discussions about an EU-wide cap on prices and limiting intra-day price fluctuations. WILL [WEAKER PRICES](https://www.financedigest.com/uk-house-prices-end-2022-on-a-weaker-note-after-pandemic-boom.html "UK house prices end 2022 on a weaker note after pandemic boom") BE SUSTAINED? Much depends on the weather and the impact on demand. Forecasts show that [Europe will continue](https://www.financedigest.com/workday-continues-momentum-across-europe.html "Workday continues momentum across Europe") to experience milder temperatures for the next two weeks. This will slow the rate of withdrawals from storage. Longer-term, forecasts indicate that much of Europe will have milder-than-normal temperatures this winter. The difference between a [cold and a mild winter](https://www.financedigest.com/first-winter-cold-snap-tests-french-power-grid.html "First winter cold snap tests French power grid") is around 25 billion cubic meters (bcm) or 7-8% of total EU gas demand, Bromander said. But analysts have warned against complacency. The temptation in Europe will be to take a sigh of relief and acknowledge the hard [work and tough decisions on demand](https://www.financedigest.com/apples-australian-workers-go-on-christmas-strike-demanding-better-wages-work-terms.html "Apple’s Australian workers go on Christmas strike demanding better wages, work terms") and supply that have been taken,” Bromander said. Factors such as [higher demand for LNG from Asia](https://www.financedigest.com/asia-shares-creep-higher-wary-on-fed-and-boj-outlooks.html "Asia shares creep higher, wary on Fed and BOJ outlooks") if it experiences a cold winter, and any delays to LNG outages or additional large outages at gas infrastructure, could affect prices. A number of [LNG cargoes](https://www.financedigest.com/britain-to-receive-rare-lng-cargo-from-australia-oman.html "Britain to receive rare LNG cargo from Australia, Oman") have been circling off the coasts of Spain unable to secure slots to unload, exposing Europe’s lack of regasification capacity. “Are we out of the woods? Absolutely not. While it’s mild now, a prolonged cold spell could still lead to [surging prices](https://www.financedigest.com/explainer-oil-price-surge-changes-ecb-narrative-only-at-the-margins.html "Explainer-Oil price surge changes ECB narrative only at the margins") towards the end of winter, or indeed next winter,” added Tom Marzec-Manser, head of gas analytics at ICIS. DOES THIS [MEAN LOWER PRICES FOR HOUSEHOLDS AND INDUSTRY](https://www.financedigest.com/senior-managers-regime-what-does-it-mean-for-the-industry.html "SENIOR MANAGERS REGIME – WHAT DOES IT MEAN FOR THE INDUSTRY?")? Lower wholesale prices do not immediately translate into lower [retail prices for consumers](https://www.financedigest.com/france-leans-on-retailers-to-help-consumers-cope-with-food-prices.html "France leans on retailers to help consumers cope with food prices"). Energy suppliers hedge, or buy in advance, the power they need for customers, typically around six months ahead, meaning [rises or falls](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise") in the wholesale market take time to filter through to people’s bills. In response to high [energy prices](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls"), several industries which rely on gas as a feedstock, such as fertilisers, ceramics, glass and cement, have reduced production this year. The risk with the sell-off in the European gas market is the potential that demand starts to pick up,” said analysts at ING Research, adding that this would make it increasingly difficult for Europe to rebuild storage levels [next year](https://www.financedigest.com/eu-could-face-gas-shortage-next-year-iea-warns.html "EU could face gas shortage next year, IEA warns") ahead of the 2023/24 winter. (Reporting by Nina Chestney; Additional reporting by Bozorgmehr Sharafedin and Susanna Twidale; Editing by David Holmes) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---