Quarterly Gas Review – Issue 23
In this fourth edition of the Gas Quarterly for 2023 we once again review the series of signposts that we outlined as key indicators of the global gas market during the year and also draw some conclusions about the outlook for prices and the supply-demand balance.
In the first half of Q3, a number of bearish factors brought European benchmark gas prices (TTF front-month) down to the 8.50-9.00 USD/MMBtu range. These included European demand continuing to be lower year-on-year, storage stocks continuing to be higher year-on-year, and growth in global LNG supply continuing to be sufficient to service growth in non-European LNG demand at that time.
However, the second half of Q3 saw more bullish factors, with Asian demand starting to rise more rapidly, and Norwegian pipeline supply to Europe being more heavily impacted by maintenance, especially in September. As a result, late September saw TTF front-month prices above 12 USD/MMBtu and Asian benchmark prices (JKM front-month) above 14 USD/MMBtu. Furthermore, the year-on-year decline in European demand reached its narrowest point in August (-2.6 per cent year-on-year). Although that decline widened to around 8 per cent in September, preliminary data suggests a narrowing again to around -3 per cent year-on-year in October.
The fact that the market remains fundamentally tight also accounts for continued price volatility, with strong price reactions to the news in September that rolling industrial action could escalate into full-scale strikes (now averted).
The second part of the Quarterly Review provides a winter outlook for 2023/24, with baseline scenarios for supply and demand on the global LNG market and the European regional market. The outcome of this scenario is that, absent any major events impacting the market, the global LNG balance is likely to remain at a level that allows European LNG imports in winter 2023/24 similar to those in winter 2022/23. If European demand is similar to last winter, and LNG supply also remains similar, our assumptions regarding European production and pipeline imports result in next storage withdrawals sufficient to bring stocks down to 60-65 bcm by the end of winter, from 105 bcm at present (late October).
That represents a relatively benign scenario for Europe, with the summer 2024 storage injection demand similar to summer 2023. If the northern hemisphere winter is markedly colder, with more LNG demand in North-East Asia and more gas demand in Europe, and European storage is therefore drawn down more heavily, the need for a larger volume of injections in summer 2024 will exert much stronger upside pressure on prices, given the continued tightness of the market at the global and European level.