- Above-average winter temperatures prompt traders to sell natural gas contracts, pushing prices lower.
- However, technically winter is just beginning and the situation could easily change by the end of winter.
- Economic conditions in Asia, the pace of industrial decline in Europe and windy weather in Europe are also important factors.
After an extremely cold Christmas in the US, most regions are seeing a warming trend. The temperature in Europe was also higher than normal.
As a result, the price of natural gas decreases in both regions. Even though winter is half over, cold weather is not expected anytime soon, so natural gas traders are selling this commodity as if demand for natural gas has peaked in winter. However, winter has technically just started and the situation could easily change before it ends.
Temperature is an important factor in the US and Europe, but there are other factors to consider: weather and economic conditions in Asian countries, the rate of industrial decline in Europe, and whether or not Europe has windy weather.
Natural gas-dependent economies like the US and Europe have been lucky so far this winter. Temperatures have been mild except for a late fall cold snap in Europe and a frosty week over Christmas in the US. Wind power generation in England and Germany was strong due to windy conditions.
Overall electricity demand in Europe was weaker than expected, and European countries did not need to cut electricity to save fuel – a situation that was expected after Russia stopped all imports of natural gas.
The Arctic storm that hit the U.S. over the Christmas week caused a significant drop in natural gas supplies and reduced natural gas production in some places where wells froze, but only 21% of America’s natural gas production was affected several times. days.
This phenomenon is likely to diminish with warmer weather in January. Some analysts predict that the warm start to the year will save 100 billion cubic feet of natural gas in the first weeks of January. For reference, the US produces this much natural gas every day. This will help replenish US natural gas supplies for the rest of the winter.
The price of natural gas is determined regionally, not globally, because unlike it, it is more difficult to transport across oceans. However, the LNG spot price is affected by conditions in different parts of the world.
For example, currently hot weather in Asia (especially China) keeps demand for natural gas low in those regions. Since many Asian economies depend on LNG imports, the spot price of LNG cargoes is lower, allowing Europe to obtain more LNG.
Europe also benefited from lower LNG demand from developing countries such as Pakistan and Bangladesh, which halted LNG imports earlier in the season as they could not afford higher prices. As a result, their natural gas reserves are very low and they face blackouts and production shutdowns.
For example, Pakistan there is closed markets and malls in mid-December and asked officials to work from home to conserve energy. Many European industries that depend on natural gas also cut production in early 2022 due to high natural gas prices and have yet to resume production.
If these conditions change and demand for natural gas increases, oil prices could rise rapidly. European companies may decide to increase industrial production because prices are now low.
Developing countries can resume LNG purchases if they get help from the IMF. If conditions are less windy, countries like England and Germany, which depend on wind power generation, will increase their natural gas consumption and will have to buy electricity from other countries.
According to meteorologists, the current higher temperatures are due to the polar vortex, which keeps arctic air in the Arctic. While there are currently no signs that it will weaken over the next few weeks, that could change in February.
Winter is not over and cold weather can easily happen in March or even April. Several weeks of below-average temperatures in Europe and/or the United States could deplete accumulated natural gas storage. In that case, prices will rise and Europe could be on the verge of blackouts again.
Disclosure: The author does not own any of the titles mentioned in this article.