Plunging prices have tilted the balance of power in Europe’s energy conflict against Moscow. But a cold winter could still drain natural-gas stores, which would pile pressure back on households and businesses and hasten Europe’s slide into recession.
“We’re at a pivotal point where the focus is moving from supply uncertainty over the summer to demand uncertainty over the winter,” said Michael Stoppard, gas strategy lead at S&P Global Commodity Insights.
Russia severed its main natural-gas pipeline to Europe over summer, a step governments say is designed to undermine their support for Ukraine. Gas and power prices jumped, but quickly retreated as Europe snapped up cargoes of liquefied-natural gas from other suppliers, helping to swell gas stockpiles close to 90% of capacity.
On Tuesday, gas was trading at just over half its peak August closing price. But the power-generation and heating fuel remains more than twice as high as a year ago. Analysts say prices could shoot up again if unusually cold weather boosts demand.
Two-thirds of the gas Europe consumes each year is used in the six months starting in October, according to Mr. Stoppard. A cold winter could add 35 billion cubic meters to demand, he said, enough to pull gas stockpiles down to uncomfortably low levels.
One unknown is how energy-price relief packages could influence demand. So far, measures don't do enough to encourage households to curb consumption, analysts say.
President Vladimir Putin retains some leverage over prices. Gas arriving via Ukraine and Turkey accounts for about 7% of overall supplies, according to Thomas Rodgers, analyst at data firm ICIS. Many traders expect the Ukraine route to go down in the coming months.
“The loss of the last vestiges of Russian pipeline flows would be another blow to European balances this winter,” Mr. Rodgers said. “The big question now is how much demand response we might get from the residential sector—will people be less inclined to use their heating this winter?”
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