Gas prices have slumped despite seemingly favourable geopolitical trends such as increased tensions between Russia and Ukraine, delays in the Nord Stream 2 pipeline, and eastward flows on the key Yamal-Europe pipeline for 30th consecutive days.
There are also no expectations of further exports to Europe planned from Gazprom in February.
Nevertheless, UK natural gas prices are down nearly five per cent, with futures trading for March and April reporting near six per cent drops.
Meanwhile, Dutch futures on the TTF benchmark are also down nearly five per cent, with similar drops for futures this spring.
Saxo Bank’s head of commodity strategy Ole Hansen attributed the drop in prices to three developments: fading supply disruptions in Norway, milder weather forecasts reducing demand, and the highest arrivals of liquefied natural gas (LNG) since November 2019.
This has bolstered formerly flagging supplies, heightened by problems at the pumps in Russia.
He also pointed to speculation from Asian markets which has caused sentiment to diminish.
Speaking to City A.M., Hansen explained: “A story is going around that China is currently well stocked with gas, and as a result has been offering cargoes to the highest bidder, most of which are currently located in Europe.”
Investec’s head of oil and gas research, Nathan Piper, said: “Gas prices are down due to the arrival of additional LNG supplies but mainly the effect of mild weather conditions.”
This is not the first time LNG supplies have bailed out Europe’s supply issues following worries of potential blackouts.
While power shortages have been reported in Moldova and Kosovo, larger economies avoided an energy crunch at Christmas after a flotilla of tankers arrived from the US – dropping prices 20 per cent from record levels.
There is also the possibility of demand destruction in the near future, where buyers shift away from the market due to high costs and pivot to different fuel sources, dropping consumption levels and consequently prices.