The price of natural gas in Europe has reached its lowest point in two years, signaling a lack of demand in the market and offering a much-needed relief after the historically high electricity and gas prices experienced last year. This week, the wholesale gas price on the Dutch exchange plummeted to its lowest level in the past two years, and experts predict further declines may be on the horizon. Several key factors contribute to the current affordability of natural gas on the continent.

One significant factor is the increasing import of liquefied natural gas (LNG) from overseas as an alternative to Russian pipeline gas. While LNG cannot entirely replace the reduced Russian supplies, the volume of deliveries is gradually rising, supported by the opening of new terminals. This diversification of supply helps alleviate any potential shortages and puts downward pressure on prices.

Favorable weather conditions during the winter and public appeals for energy conservation have also contributed to decreased gas consumption. As a result, the gas storage facilities across the European Union are currently filled to around 67%, surpassing the five-year average of approximately 50%. This ample supply of gas in storage further eases the demand and contributes to the downward pressure on prices.

The weakened state of the European economy is another factor influencing low gas prices. Germany, the largest economy in the EU, entered a recession in the first quarter of this year, resulting in reduced energy consumption due to decreased production. The economic slowdown has had a significant impact on industrial demand for gas.

Moreover, the recent slowdown in the rebound of the Chinese economy is also affecting the natural gas market. If LNG demand from China weakens, it could lead to even lower gas prices in Europe, as noted by analysts from Energy Aspects.

The expansion of renewable energy sources, such as solar and wind farms, has played a role in reducing the need for natural gas in electricity generation. Europe’s focus on developing renewable energy and favorable weather conditions have contributed to the decline in gas demand.

However, despite the low gas prices, there has not been a corresponding increase in industrial demand in Europe. The high energy prices experienced in the previous year had a detrimental impact on industries, leading to relocations or closures. Some experts suggest that a portion of the decline in demand may be permanent, as these industries may not return even if prices decrease.

The current low prices provide relief for consumers and businesses alike, but the long-term outlook for the natural gas market remains uncertain. Factors such as economic recovery, shifts in energy policies, and geopolitical developments will shape the future dynamics of the European natural gas market.

Article by Prague Forum