European gas demand fundamentals: 2022 & Q1 2023 review and short-term outlook

Gas prices have been on a rollercoaster since mid-2021. This Insight examines how this has impacted gas demand in Europe, focusing on the period from early 2022 to March 2023. It also gives a view on some of the key factors to monitor over the coming months that will influence gas demand fundamentals in the region. Understanding gas supply and demand balances in the coming months will continue to be a complex puzzle with many moving pieces, but minimizing gas demand is likely to be necessary to ease storage filling this summer and to prepare for Winter 2023/2024 (and maybe even Winter 2024/2025) as suggested by the EU Commission’s proposal to extend the voluntary gas demand cuts of 15 per cent for next winter.

This article concludes that while gas demand collapsed in Europe in 2022 (down by 13 per cent year-on-year) and remained low in the first quarter of 2023 (down 14 per cent in Q1 2023 compared to Q1 2022), the fundamentals in the three main sectors seem to point toward a potential increase in gas consumption this year, with a possible recovery of about five per cent (20 bcm). Key issues to watch closely for the rest of 2023 and 2024 include the pace of return of French nuclear reactors, but also coal-to-gas switching and the level of hydropower across Europe, both of which could (partly) counteract the effects of the French nuclear return. The willingness and ability of large and small consumers to continue to adapt their usual behaviour in order to use less energy (especially during cold days in the winter), and as a result, the level of temperatures, will be important: cold temperatures would likely derail most demand-response in the heating sector, though the trigger point and the impact are never going to be uniform across Europe due to differences in weather, buildings, and in the role of gas for space heating. The depth of an economic downturn (and which countries might be affected) and governmental interventions in subsidizing energy bills in particular, support measures for large energy intensive industries, will continue to be crucial drivers for gas demand in 2023/24, as well as, of course, the prices of gas but also electricity and the EU ETS allowances.

By: Anouk Honoré