Apr 20, 2023 - Economy

Putin's energy weapon is looking punier and punier

Data: FactSet; Chart: Axios Visuals

European natural gas prices have collapsed dramatically.

Why it matters: The decline in prices shows that with a bit of luck, and a global scramble for supplies from sources like the U.S. and the United Arab Emirates, Europe has found a way to live without Russian gas.

  • Prior to Russia's invasion of Ukraine last year, Moscow's status as the main supplier of natural gas was seen as a major source of leverage that would prevent unified pushback.

By the numbers: Benchmark prices are down nearly 90% from the peak of nearly €350 per megawatt hour in late August.

  • That's even though Russia cut off gas flows to Europe via its Nordstream 1 pipeline the following month.
  • The reason: A combination of warm weather and surging global stockpiles.

Yes, but: European gas is still quite expensive compared to just a few years ago.

  • In 2019, it averaged €15 per megawatt hour, about a third as much as today.

What they're saying: "Concern around Europe’s ability to survive a cold winter in the absence of Russian pipeline gas helped drive [European benchmark prices] to unthinkable levels during the summer of 2022, but winter weather in the region turned out to be rather mild," Bank of America analysts wrote in a note published Tuesday.

Bottom line: With ballooning European stockpiles, BofA analysts expect gas prices to grind lower at least until next winter, which, if it's a cold one, could prompt a rapid drawdown of those reserves.

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