EU Gas Prices to Extend Longest Drop in 4 Years in Mild May

May 01, 2014 11:00 am ET

(Updates with demand data in eighth paragraph.)

May 1 (Bloomberg) -- A sixth month of warmer-than-usual weather in May is set to extend the longest losing streak for European natural gas prices in almost five years.

Four of six meteorologists predict temperatures in western Europe will be above normal this month, according to a Bloomberg poll. Above-average gas inventories and easing concerns of cuts in Russian gas supplies to Europe mean fuel prices may fall further, according to Inspired Energy Plc, an energy consultant in Kirkham, England.

“Lowering the fear surrounding the disruption to gas moving east to west combined with high storage levels and milder weather suggest we could push lower,” Nick Campbell, an analyst at Inspired Energy, said by e-mail today.

The region’s mildest winter in seven years left natural gas storage levels at more than half full, driving prices for the fuel to the lowest since 2010. Wholesale electricity costs also face pressure in May as above-normal sunshine across Europe is set to propel German solar power generation above the record set in April, according to MeteoGroup Schweiz AG.

U.K. next-month gas fell as much as 1.7 percent today to 45.5 pence a therm ($7.68 per million British thermal units) on London’s ICE Futures Europe Exchange, the lowest since November 2010. The equivalent contract on Germany’s NetConnect hub yesterday reached 19.50 euros ($27) a megawatt-hour, the lowest in more than three years, according to broker data compiled by Bloomberg.

Monthly Losses

Both gas contracts dropped for a fifth month in April, the longest losing streak since 2009 for each. U.K. day-ahead gas, a benchmark for Europe, extended its run of consecutive monthly losses to the longest in almost 14 years yesterday, according to Marex Spectron Group Ltd. data.

“It should be another above-normal month for most of western Europe,” Michael Thomas, a meteorologist at Commodity Weather Group LLC in Bethesda, Maryland, said by e-mail on April 28. “Sea-surface temperatures in the North Atlantic over the past two weeks also favor this outlook.”

U.K. gas demand fell 21 percent from a year earlier to 6.2 billion cubic meters in April as temperatures were 1 degree Celsius (1.8 Fahrenheit) above the seasonal norm, according to National Grid Plc and WSI data compiled by Bloomberg. Demand for the fuel in Spain slid 18 percent in the period as temperatures were 2.8 degrees above normal, data from Enagas and WSI showed.

May Sunshine

Germany, the U.K., northern France and Scandinavia will see “considerably more sunshine than normal” in the second half of May, Byron Drew, the Reading, England-based lead forecaster at MetraWeather, said in an April 29 report.

Solar output in Germany rose to a record 24.2 gigawatts on April 17, according to the European Energy Exchange AG in Leipzig, Germany. The country’s average daily peak solar output jumped 49 percent this year to 11.8 gigawatts from the same period in 2013. One gigawatt, or 1,000 megawatts, is enough to power 2 million European homes.

“On a sunny day, German solar-power production of about 28 gigawatts is realistically achievable,” Andreas Gassner, a meteorologist at MeteoGroup Schweiz in Appenzell, Switzerland, said by e-mail yesterday.

Increased solar generation will drive German power for June down as much as 6 percent from current levels to 28 euros a megawatt-hour, according to Danny Graefe, a power and natural gas trader at AVU AG fuer Versorgungs-Unternehmen in Gevelsberg, Germany. The contract, which fell to a record 28.90 euros a megawatt-hour on April 4, traded at 29.75 euros today, broker data show.

Seasonal Norm

May is set for a cooler-than-average start across northwest Europe and the U.K., according to WSI Corp. data on Bloomberg, using the GFS model. Temperatures are expected to average 10.2 degrees Celsius this weekend, compared with a seasonal norm of 12.6 degrees.

This month’s temperatures in Europe will probably stay in line with the average, according to forecasters at Deutscher Wetterdienst in Offenbach, Germany, and MDA Information Systems Inc. in Gaithersburg, Maryland.

MetraWeather sees warmer weather in May, with a rise of 1 degree Celsius above normal from about the middle of the month. The warmest week will be from May 12, according to the forecaster.

Meteorologists at MeteoGroup Schweiz and WSI in Andover, Massachusetts, also expect May to be warmer than usual in western Europe and Germany.

--With assistance from Rachel Morison, Isis Almeida and Anna Shiryaevskaya in London.