European natural gas prices closed out 2022 at €76/MWh up almost 14% for the year, well off the panic highs and back around levels seen prior to Russia’s invasion of Ukraine at €75. These prices are more than 75% below record levels of €350 seen in August. The Dutch TTE futures are down 76.8% from the peak of $103.55 at $23.96. A number of factors came into to play. The economic fallout in the eurozone downturn extended into its sixth successive month in December, according to flash PMI data. This cruelled demand for energy. Restrictions and conservation on use from the Government takeover of energy giant Uniper in Germany also factored in. Milder weather than forecast, record LNG imports and fuller-than-normal stockpiles ease concerns about shortages.
Similar levels were seen with UK Natural Gas prices finished the year well off their highs with a gain of just 5% on the year at 180 GBP/Thm at the end of 2022 and 77.5% off the highs in March. Milder weather, increased power generation from wind and lower exports to neighboring France allowed Germany to refill storage facilities for the eighth consecutive day on December 26, 2022.
Fuller-than-normal stockpiles ease concerns about shortages.
Within the euro area, the fall in output was also broad-based by region but only France saw a deepening downturn.
The flash French composite PMI slipped from 48.7 to 48.0 to signal a second consecutive monthly drop in output and the largest decline since November 2014 if the pandemic is excluded. A softening of the manufacturing downturn was offset by the steepest fall in service sector activity for 22 months.
However, the overall level of business sentiment remains subdued by historical standards, reflecting the challenging environment caused by the high cost of living, rising interest rates, concerns over energy supply and the Ukraine war. Companies reported only a modest increase in payroll numbers again as a result, underscoring the cautious mood that prevails.
Supplies from Russia sent through Ukraine have been stable and weather forecasts point to normal to above-average temperatures through early January.
EU leaders reached a deal to cap natural gas prices, if prices on the front-month Dutch TTF contract exceed €180/MWh for three days, and if the price of LNG is above €35/MWh. Considering full 2022, European natural gas prices rose almost 14% due to lower supplies from Russia amidst Western sanctions in response to the invasion of Ukraine in February.
Demand switching and destruction across Europe, overall gas demand down more than 15% on 5-yr avg
Source: TC, Bloomberg