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Frosty Forecast Sends European Natural Gas Prices Soaring

Europe’s natural gas prices jumped by 5% mid-day on Wednesday as the latest forecasts showed most of Europe would see below-average freezing temperatures next week in a cold snap that would last at least until the middle of January.  

The February Dutch TTF Natural Gas Futures, the benchmark for Europe’s gas trading, had surged by 4.99% at $35.06 (32.10 euros) per megawatt-hour (MWh) as of 12:27 p.m. in Amsterdam today.

The benchmark gas prices ended on Wednesday three consecutive trading days in which prices had dropped as demand continued to be tepid while high renewable power generation limited the need of natural gas for electricity. 

However, weather forecasts suggest that starting early next week a cold snap will grip Europe, with temperatures in Paris and Berlin expected below the norm of the past 30 years. The colder weather will raise demand for gas with higher heating and electricity consumption. 

Despite the cold snap expected next week and the surge in prices today, European gas prices have been on a downward trend for months as high inventory levels across Europe make the market less nervous about supply shortages. 

The benchmark prices at the Dutch hub have been in a downtrend since late October, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Tuesday. Storage facilities in Europe are 86.5% full compared with a five-year average of 74%, Hansen added. Weak industrial gas demand and strong power production from renewables during the holiday period also weighed on prices earlier this week, he noted. 

Moreover, European companies have been relying more on Ukrainian storage to hold natural gas and withdraw it from there once winter heating demand rose.  

European demand has been subdued in recent months due to slowing economic activity, but Europe still needs a lot of natural gas for space heating and power generation. 

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The EU reached its target to fill sites to 90% of capacity months ahead of the deadline on November 1, and hit full storage levels ahead of winter season proper.    

By Tsvetana Paraskova for Oilprice.com

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