Where do we see the future gas market?
Almost two months into the winter period and storage levels remain at record highs. The mild weather has ensured gas injections continued into November and delayed withdrawals as long as possible. At the same time windy conditions has helped renewable generation whilst subdued Asian LNG demand has helped the region continue to receive increasingly more LNG month on month, keeping supply in check. European and UK demand levels from residential, commercial, and industrial sectors remains around 20% below the 5-year average. Although this will still be needed for the rest winter, looking at various scenarios, should there be much colder temperatures, the expectation is that a reasonable amount should be left in storage meaning the outlook on short term is leaning towards the bearish side, as long there are no major supply shocks. Day-ahead prices could drop closer to those levels seen in summer. Should we see the near term under pressure this will ultimately push next summer prices even lower.
In the medium term the challenge for the region will be how it handles high gas prices relative to the inexpensive pipeline gas from Russia. Greater reliance on LNG rather than fixed pipelines means Europe’s gas prices will increasingly be determined by issues outside its control such as weather, business cycles and global policies. However, looking further along the curve and beyond 2025 there is expectation of more LNG coming on board. Looking at the additional LNG production many researchers are expecting the US to increase exports by more than double by the mid-2030s. ICIS forecast that new North American LNG production will be more than those from the rest of the world combined, with Qatar also bringing significant volume to the market. There are plenty of undeveloped projects from Tanzania, Mozambique, Guyana, Namibia and beyond but it’s far from clear which will emerge as competitive on costs and low-carbon emissions.
Overall whilst there are still other factors to take into consideration such as demand recovery, uptake in power demand due to electrification, increase in renewable output to meet net zero targets, what can be seen is that the current forward curve is much lower than 2024, indicating the potential for stability in the second half the decade.
