European gas prices are hitting new lows due to high temperatures, strong renewables generation and rising supplies from pipelines and liquefied natural gas.
With gas storage at record highs and supply showing no signs of easing, some traders are expecting European gas prices to go to zero or even turn negative, similar to the West Texas Intermediate (WTI) oil price move below zero last month.
In the Dutch gas market, the day-ahead contract dropped below $1 per million British thermal units (mmBtu) on Thursday, for the first time since 2006, Refinitiv Eikon data showed.
The month-ahead dropped to a record low of $1.2 per mmBtu.
Such a dramatic drop was a surprise, a European gas trader said.
“The aggressiveness (of selling), especially this week, was unexpected,” he said, adding that it was likely that prices for some contracts could drop below zero.
He said there was a ‘put’ option on Thursday to sell gas during the third quarter at a pre-defined price of zero.
Producers and system operators are delaying non-essential spring and summer maintenance due to the coronavirus pandemic, which is adding volumes to the market.
“European gas prices are currently in the ‘no man’s land’, with several forward contracts at all-time lows and likely below the average production costs of the major piped suppliers into Europe,” said Refinitiv gas analyst Xun Peng.
“With no clear sign of a slowdown in supply along with demand still muted due to COVID-19 protective measures, the landscape of an acutely over-supplied European gas market has become more pronounced,” Peng added.
In the British gas market, prices also fell, with some prompt contracts down around 20%.