The energy crisis continues to subside: on the natural gas futures market, prices have fallen below the €50 per megawatt hour mark for the first time in 17 months. That's more than 80% below the August high, when energy markets panicked over the war in Ukraine and Russia's supply freezes.
The price rally, which has burdened the European economy with a cost tsunami of around 1 trillion euros, crumbled in the face of mild winter weather that reduced heating demand, energy saving efforts and large-volume imports of liquefied petroleum gas from the USA and Qatar.
On Friday, the benchmark gas contract with the shortest delivery time was traded for EUR 48.78 at times, 6.2% below the previous day's level. Such a favorable price level has not been seen within a trading session since August 31, 2021. Since the turn of the year, the contract is down around 35%.
However, analysts doubt that the price decline will last long. As winter nears its end and heating demand recedes, lower prices could mean that gas is more economical for power generation in Europe than alternatives such as coal.
"Gas prices have fallen into fuel-switching territory, suggesting that it is now more profitable to run the highest-efficiency gas plants versus the lowest-efficiency coal plants," said Stefan Ulrich, an analyst at BloombergNEF.
Demand from India and China is also increasing. Prices could also rise if there is a prolonged cold spell or supply shortages before the end of winter.
The utility Uniper SE has promised to overcome the problems caused by the broken Russian gas supplies by 2024 at the latest. However, the high cost of procuring replacements remained a problem, it said.
However, if there is an extended cold spell or further supply disruptions before the end of winter, prices could pick up again. In addition, a revival in demand in Asia is likely to increase competition for the existing LNG capacities - and thus the price.
In addition, there is hardly any Russian gas left to refill the gas storage tanks for next winter. The total filling level of the European storage facilities is currently around 65%.