Europe gas prices drop but could rise in coming months

European gas prices may have dropped to levels not seen in more than four months, but this is far from being the end of the energy crisis, four industry analysts told CNBC.

The Dutch Title Transfer Facility (TTF) is Europe’s main benchmark for natural gas prices. Russia’s invasion of Ukraine and the subsequent pressures on Europe’s energy mix have pushed natural gas prices to trade at historic levels back in August — above 340 euros per megawatt hour. However, these have significantly come down since then, ending Thursday’s session at 108.5 euros per megawatt hour.

In addition, intraday European gas prices even went negative at the start of the week — meaning that holders of natural gas paid buyers to take the cargo off their hands.

“With gas storage near full, LNG inflows in oversupply and favourable mild autumn weather, prices are doing the work to keep the system balanced as commodities trade in the present,” Ehsan Khoman, head of commodities research at MUFG Bank, told CNBC via email.

The latest data compiled by industry group Gas Infrastructure Europe shows that the EU’s overall storage levels are at an average of nearly 94% full. That’s comfortably above the 80% target the bloc had set for countries to reach by the start of November.

Some of the LNG (liquefied natural gas) orders made during the summer are arriving now, when storage is full, representing an oversupply. Temperatures in the region have also been unusually warm, with some nations currently experiencing 20 degree Celsius (68 degrees Fahrenheit) heat.

Nikoline Bromander, analyst at consultancy Rystad Energy, said high output from wind power and political agreement within the EU on cooperative measures to reduce gas prices and consumption have contributed to lowering gas prices.

But Europe’s energy crisis isn’t over, and analysts are warning European policymakers against complacency.

“The temptation in Europe will be to take a sigh of relief and acknowledge the hard work and tough decisions on demand and supply that have been taken,” Bromander said in a research note.

“However, a series of factors – from Asian demand for LNG potentially increasing to a lack of sufficient regasification facilities in Europe means that decision makers may feel the pressure sooner rather than later.”

One of the big question marks is what will happen to LNG demand when China fully reopens its economy. Beijing has been the biggest buyer of LNG in the world, but its zero-Covid policy has prevented its economy from operating at full capacity. If this dynamic changes in the coming months, there will be more competition for the commodity and prices could spike.

Henning Gloystein, director for energy at…