European gas storage is forecast to reach 100% by the end of September and remain full until the end of October, with an additional 4 million tonnes per annum (mmtpa) of floating storage also built up, according to a new report from data and technology company. analysis Wood Mackenzie.
The report, Europe gas and LNG markets short–term outlook Q2 2024 , points out that low European gas demand has kept storage levels at historic highs this year. And this despite the fact that Europe has imported 11 mmtpa less liquefied natural gas (LNG) until May, compared to the same period in 2023.
Cullen adds that the increase in Asian demand, together with the risks to Russian supply and the maintenance of Norwegian fields, has driven up gas prices in Europe, with a 40% increase in the price of the Transfer Title (TTF) in the last three months and a price close to 11 dollars per million British thermal units (mmbtu).
European demand improves in the medium term
The report notes that the return to normal meteorological dynamics during the winter of 2024/2025 and the strengthening of the macroeconomic outlook will drive increased heating needs, industrial activity and electricity demand across Europe. Overall, the report forecasts an increase in gas demand of 7 billion cubic meters (bcm) in 2025, compared to 2024.
Meanwhile, rising Asian demand will absorb most of the still-limited liquefied natural gas entry into service, but Europe should be able to import 4.2 mmtpa more than in 2024.
However, the report adds that Europe will most likely lose more Russian volumes, up to 12 bcm annually, as the transit agreement through Ukraine expires on January 1, 2025. Central European markets will look for alternatives to reinforce supply , including increased use of LNG regasification capacity in Southeast Europe.
The report also notes that the greatest supply risks come from Russian gas supplies, either due to an early cut in transportation through Ukraine or as a result of pending arbitration proceedings between European energy companies and Gazprom. Unplanned or prolonged maintenance of Norwegian gas will play a larger role as Norway is now Europe’s largest gas supplier, and the speed with which new LNG supplies from North America reach the market remains a key concern.
The wave of new global LNG supply rebalances the market
With more than 40 mmtpa of LNG supply growth expected by 2026, prices will undergo a structural change. Asian LNG demand will absorb significant additional LNG supply, but Europe will have to absorb almost 20 Mt additional LNG in 2026, putting downward pressure on prices.
“European storage levels will again reach record levels, despite resilient gas demand and reduced pipeline imports from Norway,” adds Cullen. “But with the level of LNG imports into Europe only marginally above 2022 peak import levels, our view is that the next wave of LNG supply will be absorbed somehow, with European prices remaining close to US$8. $/mmbtu. The risk that cancellation of US LNG will be necessary to balance the market remains limited.”
“Many risks remain for the 2026 price outlook,” Cullen concludes. “A muted demand response to lower prices across Asia would add further pressure on prices. “Meanwhile, supply risks cannot be ruled out, with an anticipated escalation of Western sanctions on Russian LNG limiting supply growth, raising the risk of a stronger market for longer.”
