EU Gas to Extend Bear Market on Mildest Month Since ’08: Energy
Natural gas prices in Europe are poised to drop more than 20 percent in the first quarter amid the mildest weather since 2008, as snow storms push U.S. costs to a four-year high.
Gas demand in the U.K., the region’s biggest market, is at its lowest in 12 years, grid data show. The fuel slid 15 percent since Dec. 31 and may fall another 6 percent by the end of March, according to Inspired Energy Plc. Power demand in France slumped the most in 11 months in January, sending March prices to record lows, broker data compiled by Bloomberg show.
The flip side of the polar vortex lashing the eastern U.S. is providing respite to European factories whose energy costs may be four times higher than across the Atlantic. Weaker power demand is hurting earnings for utilities from Germany’s EON SE to GDF Suez (GSZ) SA in Paris, which are already contending with a 60 percent drop in prices since 2008.
“As long as no cooler weather is forecast, we will see prices for power and gas in Europe tank,” said Frank Woskowski, a trader at AVU AG fuer Versorgungsunternehmen in Gevelsberg, Germany. “We have seen a very mild start of the year and the fear of even higher temperatures is pushing prices down.”
U.K. gas demand averaged 254 million cubic meters a day from Oct. 1 through Feb. 17, the lowest level since at least the winter of 2002-2003, National Grid Plc data show.
Front-month gas fell 1.3 percent to close at 58.48 pence a therm ($9.77 a million British thermal units) on London’s ICE Futures Europe, after falling as low as 57.9 pence on Feb. 17, the least since August 2012. The contract declined 21 percent since Dec. 3.
U.S. natural gas rose as high as $6.085 per million Btu today, the most since January 2010, as snow and ice storms pushed inventories to the lowest in a decade.
The milder-than-normal temperatures in most of Europe will extend into March, the last month of the heating season, according to five out of six meteorologists surveyed by Bloomberg.
The warm weather in Europe is the milder counterpart of the polar vortex, according to Kai Biermann, a Hamburg-based meteorologist at Deutscher Wetterdienst. Temperatures will be as much as 3 degrees Celsius (5.4 Fahrenheit) above average for three weeks from Feb. 24, he said.
“It has been extremely warm and wet this winter,” said Todd Crawford, a meteorologist at Weather Services International in Andover, Massachusetts. January was as much as 2 degrees Celsius above average in the U.K. and “what’s sort of scary about the pattern is there is not any indication of any change in the pattern any time soon,” he said.
U.K. front-month gas probably will drop to as low as 55 pence by the end of next month because it’s been more profitable for utilities to buy renewable power after output from wind turbines jumped, said Nick Campbell, a risk manager at Inspired Energy in Lancashire, England.
Generation at British wind parks reached a record 6,222 megawatts on Jan. 31, enough to supply more than 12 million European homes, according to grid data compiled by Bloomberg. German wind turbines produced an unprecedented 26,269 megawatts on Dec. 5, data from the European Energy Exchange AG show.
Power for next month in Germany, Europe’s biggest market, may drop 9.8 percent to below 30 euros per megawatt-hour ($41) before the end of March, said Jens Teresniak, an energy economist at Stadtwerke Leipzig GmbH.
The average hourly wind generation in Germany rose 34 percent in March 2013 from a month earlier, while mean solar output more than tripled, EEX data show.
French power for March delivery fell to a record 41.50 euros a megawatt-hour on Feb. 14 and closed at 42.30 euros today. The equivalent German contract closed at 33.25 euros, according to broker data compiled by Bloomberg.
The shale-gas boom in the U.S. boosted output of the fuel for an eighth year in 2013 and widened the gap European manufacturers pay for energy.
The U.K. premium to U.S. gas futures narrowed to $4.36 per million British thermal units yesterday, the least since August 2011, after reaching as much as $8.11 on Dec. 13. The fuel in the U.K. hasn’t traded below U.S. prices since March 2010.
The five-fold expansion in Europe’s renewable power output in the past decade is squeezing profit at utilities. The average operating margin of 15 European utilities declined to 12 percent in 2012 from 21 percent in 2006, according to the latest company data compiled by Bloomberg.
Drax Group Plc, the operator of the U.K.’s biggest coal-fired station, yesterday reported a 23 percent slump in full-year profit, attributing the decline in part to milder winter.
German wind and solar power output amounted to 25 percent of the nation’s power in the seven days through Feb. 15, compared with 20 percent the week before, according to EEX data compiled by Bloomberg Industries. Output from solar and wind generators was 12 percent of Germany’s total power supply last year, according to AG Energiebilanzen e.V., an association of energy lobbies and economic research institutes.
Gas prices may jump amid cold spikes or output cuts during the European winter as the buffer between peak demand and supply falls. Colder-than-usual weather in February and March last year depleted stockpiles and drove U.K. prices to a seven-year high.
“The winter can have a sting in its tail” and unplanned outages at production facilities may crimp supply, said Craig Lowrey, a consultant at UX Energy Services in Ipswich, England, which buys energy for clients including Tata Motor Ltd.’s Jaguar Land Rover unit.
Output from gas fields in Norway, Europe’s biggest supplier after Russia, fell 6.2 percent in December from a year earlier. It’s the third consecutive month production fell short of the Norwegian Petroleum Directorate’s forecasts, according to Bloomberg Industries.
The Dutch government said last month it plans to cut output in Groningen province, home to mainland Europe’s biggest gas field, by 21 percent this year after earthquakes connected with fuel extraction damaged houses in the region.
European gas storage was about 50 percent full on Feb. 16, compared with about 46 percent a year earlier, according to data from Gas Infrastructure Europe in Brussels.
Gas inventories in the U.K. were about 3.3 billion cubic meters as of Feb. 17, about 1 billion cubic meters more than at the same time in 2013 and the highest for the time of year since at least 2008, National Grid data show.
German next-year power prices fell for a record third year in 2013 and closed at 36.65 euros a megawatt-hour today, broker data show. The contract exceeded 90 euros a megawatt-hour in 2008 and it may extend declines by 4 percent to 35.20 euros in the second quarter, Societe Generale SA in Paris forecasts.
“We expect power, gas and coal prices to stay weak,” said Thomas Gollnow, the managing director of Syneco Trading GmbH, a Munich-based trading company. “We can see lows of 34 euros a megawatt-hour this year for year-ahead power, especially now that we are coming out of a depressingly warm winter.”
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