European gas prices drop amid warm weather in January | Gas

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A bout of mild weather in the UK and Europe has sent wholesale gas prices down in a respite from price hikes that have pushed up energy bills.

European prices for February delivery fell 4.3% to 73.7 euros/MWh while UK prices fell 3.8% to 179p/s.

The recent mild weather has reduced heating demand in the UK and the rest of Europe and conditions are expected to remain mild over the next two weeks.

The situation added to optimism about gas supplies, which have come under pressure since Russia cut its gas exports to Europe after its invasion of Ukraine. Prices fell last week to levels that did not exist before the war broke out, in February 2022.

European countries scrambled to fill gas storage facilities amid fears of a shortage this winter. They made good progress, creating optimism among traders and easing prices. Traders are also betting that a possible global recession will lower energy demand this year.

However, concerns remain about how Europe will replace imports of Russian gas next year, which means prices are likely to remain high against historical averages.

Over the Christmas period, Russia’s deputy prime minister, Alexander Novak, indicated that Moscow was ready to resume gas supplies to Europe via the Yamal-Europe pipeline, which runs through Poland and was shut down last year.

Separately, Germany and Poland followed through on their pledge to halt Russian oil imports through the pipeline on Sunday.

If the pace of decline in gas prices accelerates this week, it could significantly reduce the cost of the UK government’s efforts to reduce energy bills. The state is covering the gap between wholesale prices and energy price caps for suppliers, in a bid to limit typical household bills to around £2,500.

The government said in November that it expected its plan to cut domestic bills to cost £25bn this financial year and another £13bn in 2023-24.

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Businesses and other energy consumers, such as schools and charities, are awaiting an update from the government on plans to extend a similar non-domestic initiative beyond March.

Live data from the national grid operator on Tuesday showed that more than half of the power generated in Great Britain was from wind, with gas accounting for 21% and nuclear 17%.

In the run-up to Christmas, gas-fired power stations made up up to 60% of the energy mix, as cold weather and low wind speeds put pressure on Britain’s power systems and sent electricity prices soaring.

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