European Natural Gas Prices Surge as Winter Blast Stokes Demand

(Bloomberg) -- European natural gas prices jumped for a third session as a blast of unusually cold weather across the northern half of the continent tests its resilience to a historic energy crisis.

Benchmark futures surged as much as 6.5% after settling Wednesday at the highest level since mid-October. 

From London to Latvia, temperatures are set to drop below freezing in the coming days with little sign of letting up, forecasts show. It’s the first real trial of the season for Europe’s strained power and gas network, with wind power slumping and nuclear output in Sweden and France hobbled by outages.

Read: Arctic Blast to Test Swedish Power Grid as Nuclear Plant Shuts

“It’s all about the cold blast driving up demand for heating and clear blue skies pointing to lower wind activity and more dependency on gas,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

The continent’s gas storage levels have dropped to about 90% full, from almost 96% in mid-November, according to data from Gas Infrastructure Europe. The cold snap has coincided with additional outages at facilities in Norway.  

Still, Europe is importing record volumes of liquefied natural gas as lower pipeline flows from Russia exacerbate the crisis. Traders are also closely watching activity in China, which is loosening Covid-related restrictions that have crimped energy demand. A freeze in Asia could increase international competition for LNG.

“Germany has one of the highest prices for LNG now, and that has helped to attract cargoes,” said Peter Heydecker, executive director of trading at German energy company EnBW. “We have a huge need now, but we compete globally. We still see enough LNG coming, but that can quickly change and we need to keep an eye on Asia’s demand.”

Dutch front-month futures, the European benchmark, traded 4.5% higher at €156 per megawatt-hour by 10:04 a.m. in Amsterdam. The UK equivalent contract rose 5.4%.

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