Analysis | Europe’s Spring Weather Is Putin’s Winter Of Discontent

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You don’t usually wear a T-shirt to welcome the New Year in Europe. But if the weather forecast proves correct, Berliners will enter 2023 in spring-like temperatures of about 15 degrees Celsius, the average for the day is usually closer to freezing. Paris and Zurich may reach 18 degrees in the first or second day of the New Year.

In normal times, the unseasonably mild weather would be unmitigated bad news: another sign of global warming. But right now, the warmth — and relatively strong wind — is good news for a continent battling an energy crisis. It mean there will be a lot less gas and electricity demand plus more wind power. With it come lower prices. The loser is President Vladimir Putin of Russia.

With nearly half of the heating season in the rear mirror — the midpoint comes around Jan. 15 — Europe can now breath a little easier. I may be tempting fate, but even a pessimist like myself can say there’s light at the end of the tunnel.

Unless the continent suffers an extremely cold second half of the winter, it should have enough gas to avoid a crisis-like scenario. The current forecasts suggests the mean temperature in northwest Europe on New Year’s eve will be nearly 8.5 degrees Celsius above the long-term average. The last time the deviation was this large was exactly a year ago, when Europe also experienced a warm Christmas.

Despite a brief period of colder-than-seasonal temperatures in early December, the 2022-23 winter has been so far rather mild. Considered in heating degree days — a measure of energy demand when compared against mean local temperatures — the region has experienced 809 HDDs since the beginning of October, about 9.5% below the 30-year average, according to Bloomberg data.

If the weather in the next five days proves as warm as the forecasts suggest — including a spring-like New Year’s Day — the cumulative number of HDDs since October would extend their drop to 13% below the long-term average. That’s a massive decrease, which comes on top of further reductions due to companies shutting down production, switching from gas to oil, and households turning down their thermostats in response to energy-saving campaigns.

With demand down, Europe isn’t depleting its gas storages as fast as expected — or feared. Over the last seven days, Germany has managed to inject more gas into storage than it withdrew — unusual during the Christmas season. As a result, the country’s gas stores are 88.8% full, almost 15 percentage points above the 10-year average. The situation is similar across the European Union, where storage levels are at 83.1%, a whooping 30 percentage points higher than at this time in 2021. There should be enough gas left by the end of the heating season in March under almost any scenario. And that means that refilling storages for the 2023-24 will be easier than expected.

The best benchmark for the Europe-vs-Putin gas fight is TTF, the cost of natural gas in a hub in the Netherlands. Earlier this week, TTF prices plunged to less than 80 euros ($85) per megawatt hour, the lowest since Russia invaded Ukraine last February. In August, TTF prices surged to a record high of 350 euros per MWh, and prices briefly spiked to 150 euros per MWh in mid-December during a cold spell.

Aided by lower gas costs, softer demand and stronger wind-power generation, European electricity prices have also plunged. Day-ahead German prices, which soared to 700 euros per MWh in August, plunged on Friday into negative territory, meaning that producers had to pay consumers 0.79 euro per MWh to dispose of their electricity generation. French and British short-term electricity prices fell sharply, too.

Europe has got very lucky this winter. It was unusually mild in October and November, reducing demand at a critical time. Barring 10 very cold days in early December, it has remained warmer-than-seasonal since. But remember: it’s the weather. God knows it could change for the worst. The vagaries of the weather shouldn’t be the basis for planning for the future. Otherwise, everyone, from central bankers to captains of the industry, would have to count on winter being warm again in 2023-24. The gods of weather giveth but the they can also take away.