It’s Getting Cold And Europe’s Gas Supplies Are Lower Than Ever

Europe is set to get its first cold spell of the winter season, putting the continent’s already scant energy supplies under pressure.

Temperatures are set to drop starting next week, with parts of Italy forecast to experience weather as much as 2 degrees Celsius below normal.

Southern France, Spain, and Germany are also forecast to be colder-than-usual, according to The Weather Company. Centrica Plc, the U.K.’s top energy supplier, warned its nine million customers to prepare for an icy blast that could last as long as six weeks.

The region will be particularly sensitive to cold snaps in the coming months, with gas prices up for a second week after surging to records in October.

Extra supplies promised by Russia have so far been negligible and Norwegian flows have been reduced because of heavy maintenance.

“This is going to test the energy supplies across Europe,” said Tyler Roys, lead European forecaster at AccuWeather Inc.

A high-pressure system could also bring more northerly and colder air flows over central and southern Europe by the end of the month, said Carlo Cafaro, a senior research analyst, and meteorologist at Marex.

Benchmark gas prices are still almost four times higher than normal for this time of year, sending electricity and European emission permits surging. Dutch month-ahead gas futures, the benchmark for Europe, rose 1.4% this week after climbing 14% last week.

The cooler temperatures in the south will coincide with stormy weather over the Mediterranean with threats of flooding and mudslides, Roys said. This will bring big swings in wind generation, likely to drive price volatility even higher.

November temperatures, on the whole, could end up being close to normal, but may still be cooler than the above-average levels for the past four years, according to Accuweather data.

That could also impact gas storage levels as companies withdraw supplies to meet higher demand, already roaring back as economies recover from the pandemic.

The number of heating degree days, a measure of demand, will be higher than the 10-year normal during the next two weeks, according to Maxar.

But there is still some uncertainty between models for northwest Europe, and forecasts haven’t been very accurate lately, said Steven Silver, a meteorologist at Maxar.

The arrival of cold weather in Europe would follow freezing temperatures and snow in China, the world’s biggest energy consumer.

Higher heating demand could intensify the already fierce battle for liquefied natural gas cargoes, with prices for flexible U.S. LNG still more attractive in Asia.

The development of the La Nina weather pattern in the Pacific basin means possible colder-than-average temperatures in Northeast Asia during the winter months, but better availability at nuclear reactors in Japan and South Korea, as well as higher domestic output in China, could keep any increases in LNG imports in check, Energy Aspects Ltd. said last week.

Read rest at Bloomberg