Europe's Energy Sector Hopes for Mild Winter

Mild weather pulls down energy demand, but farmers fear third wet winter will hit revenues.

A predicted mild and wet winter might save Europe from the worst impact of a potential Russian gas supply disruption, but it would mean another difficult season for farmers who have already suffered from two consecutive wet years.

Russia is Europe's biggest supplier of natural gas, and its gas pipelines through Ukraine are currently the subject of political manoeuvring as Europe and Moscow clash over the crisis in Ukraine.

Russia's state-controlled gas giant Gazprom meets around a third of Europe's gas demand, worth some $80 billion a year, and it sends almost half of these supplies via Ukraine

Should Russia cut exports to Europe in the middle of winter, much will depend on how much gas the region has in storage to get it through the cold months.

So far, the weather has played out in favour of European energy consumers, and the outlook is also promising.

"Early winter could get rather wet and mild," said meteorologist Georg Mueller.

Much of western Europe has already experienced one of its warmest and wettest January to August periods.

"January to August is the warmest (with respect to mean temperature) and wettest such period in our records," Britain's Met Office told Reuters.

The mild weather and low demand this year have allowed Europe's utilities to stock more gas than in previous years, which they hope will help them get through the upcoming high demand winter heating season should Russian flows to Europe be interrupted because of upheaval in Ukraine.

European storage facilities are filled to almost 90 percent, holding 73 billion cubic metres (bcm), equivalent to over 15 percent of Europe's annual demand.

The mild winter, spring and summer of 2013/14 reduced energy demand, leading to a 25 percent fall in wholesale natural gas prices and a 15 percent slump in coal prices.

Continuing this year's trend, Europe looks set to experience a mild start to the winter, with September, October and November likely to be warmer than average in Britain and most of continental Europe, according to U.S. weather specialists Weather Services International (WSI).

Should the coming winter be mild and wet, as expected, gas stocks would last longer due to low demand and water levels to feed hydropower plants in the Nordic and Alpine regions would be fuller due to rainfall.

POOR QUALITY CROPS

Yet what is good for Europe's energy users may not be so welcome for the region's farmers.

Farmers in western Europe will be predominantly planting their winter crops in September and October, with winter wheat the most commonly grown grain in the region.

"The mild is no problem. The wet is a problem if it stops the farmers getting onto the ground to sow," said James Dunsterville, an analyst with AgFlow in Geneva.

"If it rains solidly you can't actually get machines onto the land to plant winter grains, which happened in the UK two years ago, hence we then had a big spring barley crop (and a smaller winter wheat crop)," he added.

The wet weather two years ago disrupted British winter crop planting, resulting in the lowest wheat output in a decade.

And the weather pattern was repeated in 2013/2014, when Britain experienced the wettest December and January on record, resulting in widespread flooding and damage to farmlands, which forced the government to open a fund to assist farmers.

Another wet winter this year would affect an already difficult year for many crop growers in continental Europe.

France, which is the EU's top wheat grower and exporter, caused a ripple in grain markets in August after importing milling wheat to mix with its unusually poor-grade crop caused by heavy rains.

By Henning Gloystein and Sarah McFarlane