Yuriy Onyshkiv
Wayne Bryan
Olumide Ajayi
As Europe braces for winter 2024, the global gas and LNG markets face heightened volatility, influenced by fluctuating demand, geopolitical tensions and unpredictable supply. We delve into the key factors shaping the outlook and examine how Europe’s energy future may unfold in the coming months.
- Mixed demand and supply dynamics: European gas demand remains steady, but regional supply constraints, along with reduced LNG imports, heighten concerns
- Geopolitical uncertainty and market volatility: Ongoing geopolitical risks play a crucial role in price fluctuations and create a fragile market environment
- LNG’s critical role in winter 2024: Despite increased US and Qatari supply, winter shortages remain a risk, particularly if weather conditions worsen or geopolitical events disrupt gas flows
Demand and supply dynamics: a summer 2024 snapshot
During summer 2024, European gas demand remained relatively stable, with slight increases in some areas like Local Distribution Zones (LDZ) due to a colder spring. However, a reduction in gas usage for power generation balanced out the increased residential demand.
On the supply side, Norwegian gas production increased, offsetting production declines in the UK and the Netherlands that slowed due to natural gas field maturation.
Factors shaping market prices
TTF gas prices for summer 2024 stayed within a similar range to last year, but the market has experienced price fluctuations driven by external shocks. These include geopolitical tensions, such as conflicts in the Middle East and the ongoing war between Russia and Ukraine, as well as natural events like hurricanes in the US, which disrupted LNG supplies.
Events like Norwegian gas field maintenance or further geopolitical developments could result in sudden price spikes. Currently, prices are trading within a tight range of €37-€42/MWh, but further volatility is expected as winter progresses.
Investment activities are also playing a role in the fluctuating market. Hedge funds have reduced their long positions, while commercial players have increased theirs, reflecting diverging views on the market’s trajectory. This divergence has added to the volatility, as different players hedge against geopolitical risks and market imbalances.
Projections for the coming season
Looking ahead, market expectations are cautious. While prices are projected to remain within the €37-€47/MWh range this winter, various external factors could cause significant fluctuations. A colder-than-expected winter, further geopolitical unrest or supply disruptions could push prices higher. On the other hand, a mild winter could ease pressure on gas stocks, stabilising prices.
While Europe has relied heavily on LNG imports over the past two years, the dynamics have shifted. Comfortable gas storage levels and improved Norwegian supplies allowed Europe to reduce LNG imports by 25%.
The LNG market remains sensitive to risks, including potential supply disruptions in major exporting countries like Australia, the US and Russia. Furthermore, Egypt’s shift from an LNG exporter to an importer due to domestic production challenges has added to market concerns.
LSEG’s forecasting model: insights into sector-specific gas demand
LSEG has developed a sophisticated model to forecast gas demand across three key sectors: residential (LDZ), industrial and gas for power. This approach integrates sector-specific drivers, regression models and scenario planning to predict demand trends accurately.
- Residential (LDZ): Demand is expected to rise by 2%, driven by colder weather conditions, despite structural adjustments in the market.
- Industrial: Although the sector saw peak demand destruction of around 25% during the energy crisis, recovery is anticipated over the next year, with Germany's chemical industry showing early signs of growth.
- Gas for power: With gas prices expected to align closer to global benchmarks, demand for gas in power generation is likely to increase.
Supply risks and winter forecast
Although the global LNG market is set to grow by around 5 BCM this winter, largely due to increased supplies from North America, Europe faces significant supply risks. Any unexpected outages in key LNG exporters like the US or Australia could strain Europe’s gas supplies.
Europe’s winter outlook remains uncertain, with gas storage levels expected to be a critical factor. A mild winter could leave storage at just below 50% capacity by spring 2025, but a colder season may lead to serious supply shortages, causing prices to surge.
A winter of uncertainty
As winter 2024 approaches, Europe’s gas and LNG markets face a delicate balance of supply, demand and external risks. Geopolitical tensions, weather patterns and investment fund activities are all poised to impact the market.
LSEG’s forecasting model provides valuable insights, offering a structured approach to understanding sector-specific demand and the factors shaping the winter outlook.
The European gas and LNG markets face an unpredictable winter, with potential supply risks and price volatility.
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