Europe Faces Cold December With Gas Reserves at 5-Year Low
Most of Western Europe will probably be colder than usual this month, potentially boosting natural gas prices and widening the region’s biggest storage deficit in five years.
A high-pressure system is poised to drive cooler air northwest across Europe through the first half of this month, said meteorologists including MDA Information Systems LLC, WSI Corp., MetraWeather and MeteoGroup U.K. Ltd.. Prices in the U.K., Europe’s biggest market for the fuel, may extend gains after yesterday closing at a seven-month high, according to Energy Aspects Ltd., a London-based energy markets consultancy.
The forecasts suggest colder than average temperatures for a second month as households from the U.K. to France boost use of natural gas to heat homes. The cold weather already widened Europe’s natural gas storage deficit in November, increasing the risk of insufficient supplies in the first quarter.
“The weather is being bullish,” Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects, said yesterday by e-mail from London. “A cold fourth quarter, which causes a heavier draw on storage” will boost day-ahead prices and increase the risk premium into the first quarter, he said.
November temperatures in Western Europe and the U.K. were 1 degree Celsius (1.8 degrees Fahrenheit) below the seasonal norm, according to MetraWeather data on Bloomberg. Availability in the region’s gas stores was 10.4 percentage points below the five-year average on Nov. 30, compared with a 7.5 percentage-point shortfall a month earlier, according to data compiled by Bloomberg.
U.K. day-ahead prices closed at a seven-month high of 72.50 pence a therm ($11.90 per million British thermal units) today, according to broker data compiled by Bloomberg.
Near-term power and gas prices typically rise in winter as reduced daylight hours limit solar generation and demand for heating increases. Gas for delivery in December in the U.K. rose to 71.1 pence a therm on Nov. 29, 1.7 percent higher than the start of the month, according to broker data compiled by Bloomberg. French December power rose 5.4 percent over the same period to a record 54 euros a megawatt hour.
Gas was used to produce 21 percent of the region’s power in 2011, according to Eurostat data compiled by Bloomberg Industries.
The average temperature in the U.K. next week is forecast at 2.8 degrees Celsius, compared with a seasonal norm of 5.2 degrees Celsius, MetraWeather data using the ECMWF model at 6:56 a.m. London time today show.
Germany’s average temperature will be 1.7 degrees Celsius next week, compared with the seasonal norm of 2.9 degrees, according to the GFS model supplied by MetraWeather at 17:45 p.m. Berlin time today.
Temperatures will rise to near average for most of Europe in the week to Dec. 29, Byron Drew, lead forecaster at MetraWeather said by e-mail from Reading. January and February will probably see above-normal temperatures, Todd Crawford, meteorologist at WSI, said in an e-mailed report on Nov. 26.
Availability of gas in European gas stores fell to a five-year seasonal low in February amid the coldest spring in 26 years and remained below average levels even as stocks were replenished over the summer, data compiled by Bloomberg show.
“As storage is drawn down in the fourth quarter, this increases risk over being able to meet demand during any cold spells in the first quarter,” said Sikorski.
Europe’s largest power market, Germany, plans to get 80 percent of its electricity from renewables by 2050, compared with 22 percent last year. It has expanded the amount of electricity it gets from solar to 4.2 percent of supply at the end of last year, up from 0.7 percent in 2008, according to data from from AG Energiebilanzen e.V., based in Berlin.
German wind power generation is forecast to peak at a record 25 gigawatts in the night between Dec. 5 and Dec. 6 when heavy storms are expected, Andreas Gassner, meteorologist at MMInternational, said by e-mail from Appenzell, Switzerland. December wind power output should be close to normal, he said.
This surge in renewable energy production has cut German next-year power prices to 37.35 euros a megawatt-hour on European Energy Exchange AG today in Leipzig. That’s the lowest for the time of year since 2004, the data show.
The failure of prices to pick up in response to cold weather “is not surprising as demand is low and supply is plentiful,” Paolo Coghe analyst at Societe Generale SA said in an e-mailed report on Nov. 27.
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