The Zhitong Finance App learned that a cold wave swept through most parts of Europe this month. In addition, ships carrying fuel changed their routes due to the tense situation in the Red Sea, European gas prices should have risen in response. But in fact, gas prices in Europe have been falling. Even though it's not time for Europe to lift the alert, it's a strong sign that the worst period that caused energy bills to soar and inflation to multi-year highs is over.

Benefiting from last year's record reserves of natural gas, the development of renewable energy and a relatively mild winter, the benchmark Dutch TTF gas price is currently only €28.44/MWH, which is about one-tenth of the peak level in 2022. The weak economy is also helping to limit gas prices in Europe to a certain extent, as energy demand in major industrial countries such as Germany is sluggish. This is enough to boost traders' confidence that the Eurozone's base is stable enough to spend the rest of the winter with the remaining gas.

Balint Koncz, MET International's head of gas trading in Switzerland, said: “Looking at prices alone, the energy crisis seems to be over. However, we are now dependent on factors that are likely to change rapidly on a global scale.” He added: “If there is a sudden interruption in supply or prolonged cold weather, energy prices may rise again.”

One of the key risks comes from the Middle East region. Qatar's routes to transport liquefied natural gas to Europe have been affected due to the tense situation in the Red Sea region. Ships carrying oil and gas are avoiding the region and making detours through South Africa. This could cause fuel supplies to be delayed.

alternative energy

European gas prices plummeted by nearly 60% in 2023, and by another 12% so far this year, which will help lower consumers' energy bills. In the UK, consulting firm Cornwall Insight estimated in December last year that the upper limit of energy prices regulated by the government would drop by nearly 14% by the spring of this year.

Kim Fustier, head of European oil and gas research at HSBC Holdings, said: “This is the second winter in Europe without Russian gas supplies. There were no issues during the 2022 winter season of 2023, which helped calm traders' nervousness.”

The construction of European renewable energy means that natural gas is a smaller and smaller share of Europe's electricity structure. The increase in wind and solar power generation, as well as the recovery of French nuclear power, will help reduce demand for fuels such as natural gas.

However, the European energy market still has a long way to go, and there are many potential obstacles. The gas pipeline transit agreement between Russia and Ukraine expires at the end of this year and is unlikely to be renewed, which means Europe will receive less gas from Russia. Furthermore, despite significant global investment in liquefied natural gas, most of the new production capacity will not enter the market until 2025 and 2026.

Notably, extreme weather events are becoming more frequent, which will put pressure on power systems and sometimes increase demand for natural gas.

In Asia, strong inventories mean gas prices are also falling in the region. The current price of natural gas in Asia is at its lowest level since June last year. As the world's second-largest importer of liquefied natural gas, Japanese LNG buyers are actively selling goods because they have too many stocks, and some of the goods may be shipped to Europe.

The situation in the US is much the same. Last week, US natural gas futures fell by about 20%, as US gas reserves are still well above the five-year average. Although the cold weather boosted electricity demand and caused some gas wells to be frozen, it did little to boost futures prices.

Route interrupted

Despite this, two key LNG delivery routes around the world — the Suez Canal, which is affected by Red Sea tension, and the Panama Canal, which is affected by the drought — are lengthening delivery routes and increasing shipping costs. Although traders don't seem to care much, prolonged route disruptions could change that.

Also, the fall in gas prices from their 2022 peak is not always unidirectional. From the liquefied natural gas plant strike in Australia to the power outage in the US, to the conflict between Palestine and Israel, drastic fluctuations have caused gas prices to soar. This reminds people that the current situation cannot continue. Stefan Rolle, head of energy policy at the German Ministry of Energy, said on Thursday: “We are still very cautious about what will happen next.”