European gas demand fundamentals – H1 2023 review and short-term outlook

The European gas market is still tight, but new LNG import capacity has been added, storage filling was already over 80 Bcm at the end of June 2023, and overall gas (and electricity) demand has gone down with limited prospects of a rapid recovery this year. Nonetheless, Europe must remain vigilant.

Gas supply and demand balances will continue to be a complex puzzle with many moving pieces, but minimizing gas demand will remain necessary to prepare for Winter 2023/2024 (and even for the following winters until the next LNG wave in 2026/27) as suggested by the EU Commission’s proposal to extend the voluntary gas demand cuts of 15 per cent from 1 April 2023 to 31 March 2024.

Contrary to earlier expectations that lower gas prices would trigger a recovery, gas demand was down by 11 per cent in the first six months of 2023 (-27 Bcm) in Europe (EU27 + UK). This evolution was largely driven by the decline in gas use for power generation (-18 per cent), but also in the industrial sector (-13 per cent) and finally in the residential and commercial sector (-5 per cent).

This Energy Insight examines how the crisis continues to impact gas demand in Europe, with a focus on the fundamentals in the three main sectors: industrial, residential and commercial, and power.

All in all, the main conclusion is that the fundamentals now seem to point towards lower gas demand in Europe in 2023, even if gas prices fall further. Gas use is driven by a combination of multiple factors. It is difficult to disentangle all the different drivers that influence it, but the power sector and the residential and commercial sector appear to concentrate most of the uncertainties for the coming months.

Marginal growth in the second half of the year (+0.5 per cent yoy) is anticipated driven by a small decline in the power sector due to the gradual return of French nuclear power and continued depressed electricity demand; a muted demand recovery in the industrial sector; and an anticipated colder winter in October-December with higher gas use for heating compared to 2022. If this scenario materialises, it would bring the total gas decline for 2023 to -6 per cent year-on-year.

By: Anouk Honoré