European gas demand fundamentals: Q3 2023 review, October 2023 first glance, and winter 2023/2024 outlook
European gas demand was down by almost 10 per cent year-on-year in the first ten months of 2023. Demand remains well below pre-crisis levels, raising questions as to whether some demand losses may be permanent. However, a closer analysis highlights remarkable differences between the beginning and the end of the year. Over half of the demand reduction occurred in Q1 as the mild winter continued, while reduced gas-fired power demand took over as the driver for reduced consumption in Q2 and Q3.
Gas use in the industrial sector and by small businesses showed signs of recovery in Q3. These trends were confirmed by the preliminary data for October 2023. But in this sector, expectations of a rebound may be short lived considering the general worsening of the economic outlook in Europe. The demand for end-products rather than gas prices may be the key driver over the next six to nine months and may place a cap on any industrial demand recovery.
In the power sector, improved renewables availability and French nuclear production in line with EDF’s target suggest an overall weaker gas demand this winter compared to last year, although days with low wind availability will undoubtedly mark a short-term spike in gas use.
The largest uncertainty regarding gas consumption this winter comes from the residential and commercial sector, even assuming consumer demand restraint continues to some degree in a context of lower gas prices. The correlation between temperatures and gas consumption will not return to pre-crisis levels, but rough estimates show that up to 20-30 bcm could be added if winter 2023/24 is much colder than winter 2022/23.