Maguire: Wind power may temper Europe's gas market

Wind-powered electricity production across Europe dropped by over 7% in January from the same month in 2024, depriving regional power producers with a key source of clean energy right when demand for heating neared its annual peak.

That wind shortfall triggered a jump in Europe's electricity generation from natural gas to the highest in three years, and helped support a rally that has pushed up benchmark regional natural gas prices more than 15% so far this year.

Wind model forecasts are now projecting a rebound in regional wind production, however, which should help lift overall power generation across Europe over the coming weeks, and may set the stage for a cooldown in gas use and prices.

As wind farms are the fifth-largest source of electricity in Europe (after gas, nuclear, hydro and coal), the drop in wind production relative to expectations forced regional power firms to replace that lost supply with output from alternate sources.

Natural gas was the main substitution, and gas-fired power output jumped nearly 6% in January from a year earlier, to the highest tally for the month since January 2022, just before Russia's invasion of Ukraine snarled regional gas flows.

That elevated gas usage sparked a draw-down in regional gas inventories, in turn underpinning bullish gas market sentiment so far this year.

The latest wind projection models run by LSEG call for an upturn in wind generation in key markets over the coming weeks, which should help alleviate the tight power supply situation across Europe.

In Germany, Europe's largest wind power producer, wind production is expected to remain below the long-term average through February 20, and then rebound to mainly above the long-term average through the end of March.