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Natural Gas Prices in Europe Have Dropped from Record Highs and Hit Three Month Low

Natural gas in Europe dipped to an all-time low since June as the European Union formulates steps to curb volatility in the most significant marketplace of the region. The Benchmark futures dipped by 9.9 percent since June 2022 owing to the mild weather conditions and the steady inflow of liquid natural gas with high stockpiles in anticipation of the winter season.

A proposal is anticipated to be unveiled by the European Commission over a temporary dynamic price limit for the Dutch Title Transfer Facility transactions. According to an EU document draft, it will, regardless, fall behind on presenting an in-depth plan to be in effect immediately and, on second thought, seek empowerment from governments to develop a last resort mechanism.

The European Union leaders will discuss these measures at their summit to be held on October 20-21 as they aim to relieve the effect of Russia’s steep gas supply cuts on consumers and companies. There has been some relaxation due to the presence of fuller-than-usual inventories, which are continuing to drop the prices by more than 60 percent compared to late August levels.

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Some European countries reported that the supply situation looks suitable for the approaching winter season. At the same time, windy and mild weather signifies that there has not been a rise in demand yet.

Gas storage facilities in Europe are full by approximately 92 percent, which is the highest it’s been in the five-year average for this year, owing to factors like high levels of LNG imports and favourable weather. However, the inability to slash consumption and a colder-than-usual winter will likely exhaust the reservoirs making it much more challenging to restock them the following year, especially with the absence of the usual Russian gas volumes.

Previously, the EU requested the members to minimise the demand for gas by 15 percent voluntarily, and Kadri Simson, the Energy Commissioner, has stated that a strategy is being reviewed to mandate cuts. It was cautioned that measures to limit prices of gas over the weekend should not interfere with the efforts to curb demand.

At the same time, the program by the UK to freeze prices of energy in order to help households in avoiding the brunt of soaring costs will be tossed at the end of the heating season as the government aims to recover its credibility with investors.

LNG Flows

The European benchmark, Dutch front-month gas, dipped for the third time in a row to USD 125.71 (EUR 127.98) per megawatt-hour, its lowest level since June 22, while the UK equivalent contract dropped 11 percent

The prices of gas will likely persist in heading on a downward slope as substantial amounts of LNG arrives in Europe and also as storage facilities become fuller.

Yet, the spiraling war in Ukraine brings the continued risk of gas supply disruption that passes through the country. Traders are also looking for LNG demand in Asia, which can pose a competition to Europe for cargo during the colder months. China instructed its state-owned importers to halt the resale of LNG to secure its supply for the winter.

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According to Procurement Resource, European natural gas prices have dropped to new lows, during which the EU has come up with plans to tackle the market volatility. The measures will be discussed at the summit on October 20-21.

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