(Bloomberg) -- After two warmer-than-usual winters gutted demand for energy, natural gas is headed for an even more difficult summer because of the coronavirus.

The price of the fuel used for everything from power generation to home heating is plumbing record lows in Amsterdam, one of the world’s deepest and most liquid market for the commodity. Higher temperatures in the northern hemisphere meant less need for energy during the coldest months, leaving the industry ill prepared for virus-related health scares now shutting big parts of the global economy.

The result puts the gas industry on course for the biggest upheaval in its modern history, gutting profits of shippers from Gazprom PJSC in Russia to energy majors including Royal Dutch Shell Plc and paring back the cost of imports for big buyers led by China and Japan.

“We are still going through the peak of this bearish cycle,” said Samantha Dart, head of natural gas research at Goldman Sachs Group Inc. in New York. “The virus outbreak has exacerbated the oversupply situation in the global gas market.”

In Amsterdam, gas prices have plunged 58% since the heating season started in October and the worst quarter on record. U.S. futures had their biggest first-quarter drop since 2012. The outlook is worse still.

Like the tulips now blooming across the Netherlands, gas is at a seasonal turning point, with both the plants and the industry are weeks ahead of normal because of warm weather. Most gas wells flow constantly, but demand for the fuel peaks in the winter and tapers off in the “shoulder season” before summer, when the industry schedules maintenance and diverts flows into storage.

European Gas Storage

This winter, weak demand pushed more fuel into storage, leaving sites unusually full in Europe, the U.S. and parts of Asia. Those inventories from the start of April will only accumulate. That sets up the industry for a crunch in August and September when tanks will be brimming at or even beyond their capacity.

“There’s a chance we will see a collapse in prices in the U.S.,” Francisco Blanch, head of global commodities and derivatives research at Bank of America, said in a telephone interview. “We are going to be weak on the demand destruction related to the virus, but the real issue is that we had a very warm winter and we are coming out with extreme high inventories.”The gas industry is starting to take extraordinary measures to balance supply and demand. Those include:

• Storage companies in France and Italy have begun shifting tanks to injecting flows of gas instead of withdrawing them. That’s happened four to six weeks earlier than usual. Across Europe, inventories have finished winter more than 50% full, a level more typical for the middle of June. U.S. sites are 17% more full than average. China National Petroleum Corp. started injecting gas into some storage sites in March.

• Russia has scaled back some flows, and Norway delayed maintenance work on fields and terminals that’s typically done later in the summer season. What’s clear is there’s more supply than needed arriving in Europe by pipeline.
• Measures in India and China to combat the virus dashed gas demand, forcing LNG importers to cancel or delay shipments. European buyers in Italy and Spain are considering following suit. Shell, the world’s biggest LNG trader, has had to reshuffle its cargoes when the outbreak hit China.

• U.S. LNG producers led by Cheniere Energy Inc. have signaled that low margins on delivering cargoes to the Europe and Asia may force them to slow output at least temporarily. That’s threatening to curtail exports of gas from the U.S., which has had a key role in globalizing gas prices since it made its first LNG shipments in 2016. Global LNG demand may fall by 4.7% in 2020, according to Jason Feer, head of business intelligence at Poten & Partners in Houston.
• Seventeen LNG vessels around the world were tagged as floating storage as of March 27, more than triple the number of the previous week, according to Rebecca Chia, an analyst at the tanker-tracking consultant Kpler.
• The entire industry is braced for a big slump in demand, leading to talk about which producers might be forced to cut back on flows. Analysts have yet to get a grasp of how long the interruptions will last or how wide the impact will be. BloombergNEF estimates that power generators will draw a third less gas than they usually do in Europe. Gazprom is optimistic about the third and fourth quarters despite declining markets in the first quarter, CEO Alexey Miller told Russian President Vladimir Putin on Friday.

“All fundamentals point to a bearish market” in Europe, said Ahmed Hammoudan, senior gas trader at Eneco, a Dutch energy company. “We have unprecedented healthy storage levels, and pipeline suppliers have no reasons to reduce flows. I can’t really see any bullish sign.”

The glut in the market is exacerbated by a crash in crude oil, which has affected some gas supply contracts that are linked to oil. The industry’s response to lower demand is reworking the delicate economics of the global gas and power industries, unsettling typical seasonal patterns.In ordinary times, gas prices peak in winter and ease during the spring and summer when storage absorbs much of the flow. This year, the pace of injections might support prices briefly in April and May before giving way to more weakness later in the summer, according to Julien Hoarau, gas market analyst at Engie EnergyScan. Storage sites are likely to be full well before October when the next heating season begins, making it likely that producers will have to choke back flows from their wells.

“We expect storage stocks in Asia to be above normal levels heading into the summer,” said Jeff Moore, an analyst at S&P Global Platts. “This could put significant downward pressure on spot prices. It has the potential to cause deferments or cancellations of cargoes.”

The unfolding coronavirus panic has potential to trigger “very significant demand drops almost all over Europe,” said Stefan Wieler, head of energy markets analysis at Axpo Holding AG. “With wide scale industrial shutdowns only starting right now, these demand destructions are likely to get even more significant in the coming days.”While the impact of the virus is roiling forecasts at the moment, longer term it’s the weather that’s likely to guide the outlook for gas. The decade beginning in 2010 was the hottest ever worldwide, and it’s the fourth in a row to set a new high. The five warmest years occurred since 2015.

“The impact of the weather was already significant,” said Deepa Venkateswaran, an analyst at Sanford C Bernstein and Co. in London.“The coronavirus will take that to a much higher level.”

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