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Mild Weather Offsets Supply Risks, Resulting in Decline in European Gas Prices

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European Natural Gas Prices Decline as Mild Weather Offsets Supply Risks

European natural gas prices have experienced a decline as traders assess the balance between supply risks and a mild weather forecast for October. The November contract saw a drop of up to 3.5% after an initial increase in trading on Monday. Northwest Europe is expected to have temperatures well above seasonal norms throughout most of October, while gas continues to be injected into storage sites that are now over 95% full. Europe is entering the fourth quarter with unusually warm weather, which helps preserve fuel stocks as the need for heating is delayed. However, the continent remains susceptible to outages and other supply risks following last year's historic energy crisis. Algerian gas flows to Italy have been lower than usual since Sunday, and extraction from the Groningen gas field in the Netherlands has ceased due to the damaging impact of earthquakes. While supply factors weigh on the market currently, analysts at S&P Global Commodity Insights anticipate higher gas and power demand in the fourth quarter compared to last year. They project a 5.9% increase in gas needs, as manufacturers and households resume consumption. However, prices remain sensitive to supply disruptions. As Europe has shifted to receiving more liquefied cargoes rather than pipeline gas from Russia, uncertainties arise regarding potential restrictions on such flows. The Dutch front-month futures for November delivery and the equivalent UK contract have both experienced declines after initial gains. The interplay between weather patterns, supply risks, and demand dynamics will continue to shape European natural gas prices in the coming months.

Implications of Declining European Gas Prices on New Businesses

The recent decline in European natural gas prices, driven by mild weather forecasts offsetting supply risks, presents a complex scenario for new businesses in the energy sector. As Europe enters the fourth quarter with warmer than usual weather, the need for heating is delayed, preserving fuel stocks. This could potentially reduce operational costs for businesses relying on natural gas, creating a more favorable environment for startups in the energy sector.

Supply Risks and Demand Dynamics

However, the continent's vulnerability to outages and other supply disruptions, as evidenced by last year's energy crisis, adds a layer of uncertainty. This could impact new businesses that are not equipped to handle such risks. Additionally, the projected increase in gas and power demand in the fourth quarter could lead to price volatility, affecting the financial stability of new businesses.

Shift to Liquefied Cargoes

The shift from pipeline gas from Russia to more liquefied cargoes introduces another element of uncertainty, especially with potential restrictions on such flows. Businesses in the energy sector, particularly those involved in the supply chain, will need to adapt to these changes and navigate the complexities of this evolving market. In conclusion, while the declining gas prices could present opportunities for new businesses, the interplay of weather patterns, supply risks, and demand dynamics will require strategic planning and risk management.
Story First Published at: https://financialpost.com/pmn/business-pmn/european-gas-prices-decline-as-mild-weather-offsets-supply-risks
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