European gas and electricity prices tumble as wind power surges

European energy prices tumbled on Monday, with natural gas futures hitting a six-month low as Storm Isha brought unseasonable warmth and boosted wind power generation.

Benchmark natural gas futures dropped as much as 6.4 per cent early Monday, falling to the lowest since July. Intraday power prices in Germany and France fell below zero for several hours. They turn negative when supply outstrips demand.

While hurricane-force winds brought by Storm Isha are causing disruptions to travel across northern Europe – as well as power cuts in some areas – elevated wind generation offers some respite for the region’s energy supplies after a recent cold blast. Some models point to unseasonably mild weather well into early February.

With temperatures recovering, gas demand for heating and power generation should drop. Together with high fuel inventories, lacklustre industrial demand and ample supplies that will help keep energy prices in check after a brief rebound recently.

Wind generation in Germany is on course to hit a record later on Monday, topping the previous high reached just before Christmas, according to a Bloomberg model. Wind output in the UK is below the December high, but still covered about 50 per cent of the nation’s total energy mix early Monday, with gas contributing only about 20 per cent, grid data shows.

Intraday power fell as low as -€14.88 per megawatt hour for Germany on Monday, and to -€15.20 per megawatt hour in France, according to prices on Epex Spot SE. Day-ahead gas prices in the UK fell 5.3 per cent.

Benchmark Dutch front-month gas traded 5.3 per cent lower at €26.93 a megawatt hour by 9:10am in Amsterdam.

The drop comes even though tensions in the Middle East are still running high – a driver that caused a rally in gas prices in October.

“European natural gas prices have softened significantly mostly because this winter has largely been milder than normal,” according to Citigroup’s energy research strategists Anthony Yuen and Maggie Xueting Lin. “Europe should get through this winter with enough natural gas in storage.” – Bloomberg