Maguire: Recovering wind power may cool Europe's hot gas market

The wind-powered electricity produced in Europe in January 2024 was down by more than 7%, denying regional power producers a vital source of clean energy just as the demand for heating reached its peak.

This wind shortage triggered an increase in Europe's natural gas-based electricity generation to its highest level in three years. It also supported a rally which has driven benchmark regional gas prices up by more than 15% this year.

Models of wind forecasts now predict a recovery in regional production. This should lift overall electricity generation in Europe in the coming weeks and could set the stage for lower gas prices and usage.

WEAK WIND

According to the energy think tank Ember the total wind-powered electricity produced in Europe in January was just under 67 terawatts hours (TWh). This is a drop of roughly 7% from the same period in 2024, and also the lowest January total in the last 20 years.

Wind farms are Europe's fifth largest source of electricity (after coal, gas, and nuclear). The drop in production relative to the expectations forced regional power companies to replace the lost supply with output from alternative sources.

Gas-fired electricity production jumped nearly 6 percent in January compared to a year ago, the highest figure for a month since January 20,22, right before Russia invaded Ukraine and slowed regional gas flow.

The increased gas consumption sparked a reduction in regional gas stocks, which in turn has fueled the bullish sentiment on the gas market so far this season.

REBOUND

LSEG's latest wind forecast models predict an increase in wind power generation in Europe in the next few weeks.

Germany, Europe's biggest wind power producer, is expected to maintain its wind production below the long term average until February 20. Then, it will rebound and be largely above the long term average by the end of the month.

The United Kingdom is Europe's largest gas-fired generator and second-largest wind power producer.

If the wind power generation increases as predicted, power producers from both countries could reduce their gas-fired power production levels while maintaining power output.

As local wind production increases, both countries could also reduce their power imports. This would free up energy supplies in Europe.

This could lead to a drop in the regional benchmark TTF prices. These have reached their highest level since early 2023, and have caused new concerns about energy inflation in Europe.

These are the opinions of a market analyst at.

(source: Reuters)