Weekly Digest: Why Natural Gas Prices in Europe Just Dropped to Zero

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up…why natural gas prices in Europe recently dropped below €0.  

As you’re likely aware, Europe is poised for a harsh winter due to a massive energy supply crisis. 

Natural gas-fired power plants are a major source of electricity generation on the continent. Gas also provides almost half of home heating in Europe.  

Before the war in Ukraine, Russia was Europe’s primary supplier of natural gas. Now, Russia has slashed its gas shipments amid tit-for-tat sanctions over the invasion. This has led to a huge spike in energy bills right across Europe, from the Czech Republic to Ireland and everywhere in between. 

That’s why it was so shocking when natural gas prices in Europe briefly dropped below zero this week. 

So, what the heck happened? 

Well, since it became apparent that Russia would use its gas exports to punish Europe, EU countries have been rushing to stockpile as much natural gas as possible before winter arrives. They’ve been buying from the U.S., Norway, Qatar…anywhere they can get it.  

These efforts have been helped enormously by unseasonably mild fall weather. Across the continent, temperatures this October are close to those typically seen in late August or early September. Which means people have been using their home heating far less than expected, and electricity consumption levels are lower than is typical for this time of year. 

This has given the EU time to stuff its natural gas shortage tanks close to capacity. The tanks are now 94% full, according to data from Gas Infrastructure Europe. There’s even a backlog of LNG, or liquefied natural gas, tanker ships waiting to unload at EU ports. 

Gas is expensive to store, which explains why prices in Europe briefly dipped below zero. 

So, does this mean that all the talk of an energy crisis was overblown? 

Alas, no. 

Consumers are unlikely to feel this drop in prices in the near term, if at all. Energy companies buy natural gas using futures contracts, which means they lock in their supplies at set prices far ahead of time. 

And this drop is just a lull before the proverbial storm.  

Prices are sure to shoot up again once temperatures drop and Europe starts burning through its supplies. And come spring, EU countries will face the same mad scramble to refill their tanks before next winter. So, if anything, this just points to the inadequate storage capacity in European countries. 

Still, there’s no question that the fall weather has been kind to Europe and will ultimately lower, to a certain degree, the monumental cost of heating the continent this winter. 

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Next up…bitcoin outperforms. 

This has been a rough quarter for the stock market. The S&P 500 closed down 5.25%, ending in bear market territory for the second quarter in a row. 

However, it’s been a somewhat rosier period for the granddaddy of crypto. 

In Q3, bitcoin was down only about 1%, outperforming almost all other equities and sovereign currencies, including gold, the Japanese yen, crude oil, and the iShares 20+ Year Treasury Bond ETF. The only thing that ranked higher than it was the U.S. Dollar Index. 

Of course, bitcoin is still down markedly since the start of the year.  

But the king of crypto, once the poster child of volatile assets, was remarkably stable in Q3. And it wouldn’t at all surprise me if it’s poised to go on a major bull run from here… 

This thesis is backed up by a recent survey from financial giant Fidelity, which found that a whopping 74% of institutional investors are planning to buy crypto assets in the future. 

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Finally this week, Saudi money arrives to save Credit Suisse. 

You may remember that, back in October, I wrote to you about the financial struggles of two major banks—Switzerland-based Credit Suisse and Germany’s Deutsche Bank. 

By jacking up interest rates at a torrid pace, the U.S. Federal Reserve has sent the value of equities and foreign currencies plunging. This, in turn, is causing financial stress on bank balance sheets across the world. 

Credit Suisse and Deutsche Bank were seen by the markets as particularly vulnerable to these pressures. Indeed, so-called credit default swaps—investments that offer protection against a company defaulting—soared for the two banks to levels last seen in the 2008 global financial crisis. 

Both banks swore that their financial positions were solid. Yeah, about that… 

This week, Credit Suisse announced that it was accepting a $4 billion cash injection from the Saudi National Bank.  

Under the “definitely not a bailout” plan, the bank plans to step back from Wall Street and focus instead on managing the assets of the world’s uber-wealthy. It’s also going to lay off some 9,000 full-time staff by the end of 2025, with even more cuts planned after that. 

This will mark a major transformation for the bank, which has been hit by scandal in recent years. In one notable incident, for instance, two top executives resigned and the bank had to settle a lawsuit with U.S. investors after it lost $5.5 billion investing in the failed hedge fund, Archegos Capital. 

The Saudi National Bank securing a large stake in a scandal-plagued Swiss bank… What could possibly go wrong?  

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.