Despite continued supply volatility over the next several years, European natural gas prices could fall next summer by 20% from current prices as high storage and soft demand play out in the market, according to Wood Mackenzie.
In the consultancy’s short-term outlook report, researchers said the Dutch Title Transfer Facility (TTF) price could fall by as much as $4/MMBtu, placing it under $10 by mid-2024. Last winter’s mild weather and an influx of LNG cargoes have meant European Union (EU) storage has filled more quickly than average.
With high storage combined with falling gas demand from Europe’s power and industrial sectors, the continent has been able to weather recent supply disruptions without the large price swings seen last year, said Wood Mackenzie’s Mauro Chavez, research director of European and liquefied natural gas markets.
“The Norwegian maintenance schedule being extended could have had a serious impact if storage levels were not so high,” Chavez said. “And, while the strikes in Australia will ripple across the global LNG market, it is more likely they will be short-lived, limiting the implications on Asian and European market balances.”
European Insulation
The prompt TTF settled down at $13.55 on Wednesday after almost reaching $14 at the beginning of the week. There was news that returning full flows from Norway’s Troll field to the EU could be delayed for several days. The prompt price was down more than 77% compared with the same period last year.
NGI’s Forward Look data showed Henry Hub prices remaining under $3.00 through October before edging up above that level for the winter. Overall, prices are expected to remain between $3.00 and $4.00 for the next decade. Similarly low price levels are seen at other U.S. locations important to LNG exports, according to Forward Look.
Heading into next year, Wood Mackenzie anticipates European gas demand to drop a further 2.2% year/year (y/y), or 9 billion cubic meters (Bcm), especially in the power sector. Increases in renewable generation capacity and the restart of several nuclear facilities could contribute to a 12% drop in gas consumption from Europe’s utilities. Industrial and residential demand is also expected to be muted, according to Wood Mackenzie researchers.
The International Energy Agency has estimated European gas demand is forecast to fall this year by 7% y/y. Natural gas-fired generation in Europe is down by 15% from last year due to increasing renewables and lower power consumption.
Despite cooling prices, Europe has still been garnering LNG cargoes at record volumes, especially from the United States. Almost 4 million tons (Mt) of domestic gas landed in Europe in August compared with 3.6 Mt during the same time last year, according to Kpler data. Europe imported slightly more than 1 Mt from the United States in 2021.
Wood Mackenzie’s outlook is based on the assumption of average weather conditions through the coming winter and next summer. If Europe were to experience an extreme winter, researchers warned the continent could see storage fall 26% by March, adding 20 Bcm in gas demand.
“However, forecasts of an El-Niño year suggest there is now a higher chance of a warmer-than-average winter across Asia and Europe, which risks putting further downward pressure on prices,” analysts wrote.
Gas Gap Continues
Market experts are still warning that global supplies are finely balanced and price volatility still abounds. Rice University’s Baker Institute for Public Policy fellows Gabriel Collins and Steven Miles recently said Europe is facing a 100 Bcm gap of gas supply that previously was met from Russian pipeline volumes that have not been replaced by new long-term contracts.
“Additional quantities of natural gas and LNG are supplied via current firm gas supply contracts that are expected to expire in the next few years, which will significantly exacerbate the potential gas supply gap,” Collins and Miles wrote. “Altogether, the shortfall has been estimated to be as much as 60% of Europe’s expected LNG demand.”
Chavez said Wood Mackenzie expects the European gas balance to tighten in 2025, when the last remaining Russian volumes flowing through Ukraine could end as transit agreements expire.While a large increase in global LNG supply from the United States is expected to hit the market in 2025, Chavez said expectations for a further drop in prices is “overplayed, as it will take time for supply to ramp up, while LNG demand in Asia will increase.”
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