Quarterly Gas Review – Issue 24

In this first edition of the Gas Quarterly for 2024 we review the developments during winter 2023/24 on the European gas market and global LNG market and draw conclusions about the outlook for prices and the supply-demand balance in summer 2024.

In pricing terms, the winter of 2023/24 was notable insofar as the price peak arrived in October, driven by geopolitical events and concerns over potential supply disruption, rather than shifts in the physical fundamentals. As the winter progressed, those concerns receded and the bearish fundamentals made themselves felt, bringing the European benchmark price (TTF front-month) down from a peak of over 16 USD/MMBtu in October 2023 to below 8 USD/MMBtu in February 2024.

The main driver of this bearish price run was the weakness of European gas demand, which reduced the call on Europe’s marginal sources of gas supply (LNG and storage withdrawals). That weakness in European demand was spread across the main consuming sectors, and reflected a combination of mild temperatures, a lower call on gas-fired power generation, and weak industrial gas demand amid a pessimistic macro-economic outlook.

While the lower European call on LNG had a bearish influence on the global LNG market, the lower call on storage stocks enabled Europe to end the winter with record stocks on 31 March. This, in turn, means that a volumetrically similar year-on-year storage replenishment in summer 2024 will be sufficient to bring European stocks back to full capacity ahead of winter 2024/25.

With Europe’s own production and pipeline imports seemingly set to remain relatively stable in summer 2024, and the extent of storage replenishment clearly signposted, it is likely that Europe’s LNG demand in summer 2024 will also remain similar year-on-year (if not even slightly lower), thus allowing non-European markets to absorb the (admittedly limited) incremental increase in global LNG supply forecast for the coming summer.

This bearish summer outlook for Europe suggests that there will be sufficient LNG to feed China’s ongoing recovery in LNG demand, and the rapid growth in the smaller markets of South-East Asia, while the looser market and lower prices are allowing more price-sensitive buyers to return to the market.

Overall, the past winter was a good example of the European market benefitting from a combined set of circumstances that enabled the market to balance at prices much lower than in winter 2022/23, as it continues to await the ‘wave’ of new LNG supply due to reach the market from 2025/26 onwards. Looking beyond summer 2024, the coming winter of 2024/25 may be the last in which Europe needs to hope for a repeat of favourable circumstances before the supply-demand balance on the global LNG market begins its shift to being structurally looser than it is at present.

By: Jack Sharples , Anouk Honoré , Bill Farren-Price

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