European natural gas prices fell on expectations that mild and windy weather will provide some relief to the region’s strained energy system.
Warm temperatures at the start of the heating season are set to temper demand, pushing prices lower despite signals from Russia that it won’t ship more gas without quick approval of its controversial Nord Stream 2 pipeline. Strong winds in the UK and Germany may also prompt record power output from turbines on Thursday, further reducing the need for gas-fired plants.
“Starting from November, with each month that is warmer than normal, the global gas balances will ease marginally, helping to unwind a large portion of the recent rally,” JP Morgan Chase & Co. said in a note.
UK wind power generation -- blamed in part for the escalating energy crisis when the wind didn’t blow in the summer -- rose to a two-week high on Tuesday. It accounted for as much as 41% of the total electricity mix, above natural gas with about a third, according to National Grid Plc data.
Dutch front-month gas futures fell 4.3% to settle at 89.93 euros a megawatt-hour in Amsterdam. The UK equivalent slid 4.8% to 225.91 pence a therm. Carbon futures and benchmark German power prices also declined.
Gas prices briefly rose earlier on Tuesday as Russia signaled it wants German and European Union approval to begin using its Nord Stream 2 pipeline in exchange for boosting supplies. German regulators are reviewing Russia’s application but have said an initial decision may come only in January, after which the European Commission must also give the go-ahead.
Liquefied natural gas deliveries to Europe also remain muted, with Asia commanding a premium to attract available cargoes. But Europe will continue to tap the LNG market irrespective of volumes from Russia, SEB Group said. “We see that more natgas from Russia would only calm the nerves a bit,” SEB said in a note.
UK gas demand is forecast to be below the five-year average on Tuesday, according to National Grid Plc data.