Some European regions may see natural gas prices fall below zero this summer

In recent weeks, the price of natural gas in Europe has experienced a significant decline due to weak demand from power generation and industries. European traders and industry experts do not rule out the possibility of natural gas prices in certain European markets briefly dropping below zero this summer.

Ample inventories at the end of a mild winter, stable liquefied natural gas imports, and sluggish demand have resulted in eight consecutive weeks of decline in European benchmark gas prices, marking the longest weekly decline in over six years.

At the E-World Energy Trade Fair in Essen, Germany, traders and industry professionals informed Bloomberg that while it is unlikely for benchmark prices to drop below zero, there is a possibility of natural gas prices temporarily falling below zero in some European regions this summer if demand remains weak and renewable energy generation remains high.

Peder Bjorland, the Vice President of Gas Trading and Optimization at Norwegian energy giant Equinor, stated in an interview with Bloomberg, "When you have renewable energy production, there is a possibility of negative prices in certain regions of Europe; there is still quite a long way from the price levels we are seeing now to single digits and negative values, and a lot can happen along this path."

The prompt-month futures of the TTF (Title Transfer Facility) gas, the European gas trading benchmark, plummeted 10% on Thursday to $26.78 per megawatt-hour (€24.94), marking the lowest price since the start of the energy crisis in autumn 2021.

The price trend of European natural gas contrasts sharply with that of the previous year. In August of the previous year, panic ensued among governments and industries due to potential winter gas shortages as pipeline supplies were reduced, leading to benchmark prices soaring to $322 per megawatt-hour (€300).

Europe experienced the winter of 2022/2023 without any gas shortages or gas rationing due to mild winter weather, reduced consumption at the EU level, and disrupted industrial demand caused by high energy costs.

Gas inventories are typically high at this time of year. According to data from the European gas infrastructure company, as of May 24th, 66.71% of the EU's gas storage facilities were full. Currently, gas storage levels are at the highest average level in at least a decade.

Analysts told Bloomberg that Europe could potentially fill its inventories as early as September, much earlier than during winter.

With the end of the winter heating season and before the peak summer electricity demand, the current natural gas demand in Europe is weak. Industrial gas consumption, which experienced a very challenging period in the previous autumn and winter, remains sluggish despite the decline in natural gas prices.

According to analysts, although natural gas prices have dropped, industrial fuel consumption has not increased significantly, although large industrial energy consumers may wait for further price drops before increasing their natural gas usage.

Goldman Sachs stated earlier this week that as more power plants potentially switch from coal to natural gas, further price drops may gradually stabilize prices.

In a report to Bloomberg, Goldman Sachs analysts wrote that this substitution process could serve as a temporary lower limit for natural gas prices until there is a noticeable improvement in industrial demand and Asian liquefied natural gas imports. "In our view, this will eventually lead to higher natural gas prices by late summer."

The near-term outlook for European natural gas prices appears pessimistic. However, if a heatwave during the summer leads to reduced wind power generation, demand could quickly shift. If prices continue to decline, industrial customers may start using more natural gas, ultimately supporting the prices. The recovery in Asian liquefied natural gas demand could also lead to price increases in Europe, as Europe will have to compete with Asia for spot cargoes.

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