European natural gas prices on Monday hit the highest level since March as dry, hot weather has left water levels on the Rhine River low and made navigation for some fully loaded ships difficult. 

The Rhine is a key waterway in Northwest Europe for moving industrial goods. The low water levels have limited coal and diesel shipments, among other commodities, which could boost the need for natural gas at a time when supplies are low. 

Russian imports remain low, with Nord Stream 1 still at 20% capacity. The Dutch Title Transfer Facility (TTF) contract for September finished above $65/MMBtu Monday, a gain of nearly $4 from Friday’s closing price. 

[Decision Maker: A real-time news service focused on the North American natural gas and LNG markets, NGI’s All News Access is the industry’s go-to resource for need-to-know information. Learn more.]

“TTF prices will continue at high levels so long as gas supply from Russia appears to remain tight in the foreseeable future,” Rystad Energy analyst Lu Ming Pang said.

Power prices also continued setting records across the continent over the last week. Scorching temperatures, along with low wind, hydro and nuclear output have strained the grid. 

Europe is aiming to cut gas consumption by 15% through next spring given the shortfall. However, higher prices have attracted a flood of LNG that has the continent on track to fill storage to a target of 80% by Nov. 1. 

Inventories are currently at 74% of capacity, or just above the five-year average. Higher stocks had started putting downward pressure on prices last week before the market began to take warnings over Rhine water levels more seriously.

“It was once thought unthinkable that Europe could get through a winter comfortably without Russian gas, but thanks to the strength of the inventory build, we now think it can,” analysts at Standard Chartered wrote in a note to clients last week.

Competition with Asia

Europe has also benefited from subdued activity in Asia, where buyers have avoided paying high spot prices despite a hot summer in the region this year. 

“The high temperatures have boosted the number of liquefied natural gas cargoes from long-term contracts going into Northeast Asia, but activity on the spot market has so far not reached a level where Asia is directly competing with Europe for cargoes,” Pang said. 

Asia spot prices have ticked upward over the last month, particularly as Japan and South Korea look to restock for winter following hotter-than-normal weather this summer. Asian spot prices are currently hovering around $50/MMBtu.

South Korea wants to restock its storage inventories to 90% of capacity by November. Meanwhile, a Jera Co. Inc. affiliate this month released a tender to buy one LNG cargo monthly from November until March 2024. Jera is Japan’s largest power company. 

Natural gas also rallied in the United States last week, when the Henry Hub contract gained nearly 9%. The rally appeared to lose momentum Monday.

EBW Analytics Group analyst Eli Rubin said the rally rested on “relatively flimsy ground.” A brief production outage in the Gulf of Mexico has been resolved and news about the Freeport LNG terminal did not alter its projected return to service in early October. 

The 2 Bcf/d Freeport facility was knocked offline in June after an explosion and fire. The facility has been working with regulators to get operations started again. News media reported that the facility withdrew a force majeure issued after the incident pushed Henry Hub up by nearly 40 cents Wednesday (Aug. 10).

Milder weather forecasts over the weekend helped push U.S. prices lower Monday.