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European gas prices to fall 2024 amid high storage levels

  • Woodmac says it could fall to US$6.70 per mmbtu by the summer

Gas prices in Europe could fall as low as US$6.70 per million British thermal units (mmbtu) in the summer as the mild winter will see storage levels remain above 55%, Woodmac said in one of its latest report.

‘Europe gas and power markets short-term outlook Q1 2024’, stating that the mild European winter, the second in succession, means that European storage levels will reach 89% by the end of July 2024, putting further pressure on prices.

“With storage levels nearing full capacity towards the end of the summer, there will be up to 10 bcm of excess supply that will need to either be piped into underground storage facilities in Ukraine or floated in LNG vessels”, says Mauro Chavez, Director of Europe Gas and LNG Markets.  “This means that a higher summer-winter differential is required to balance the market, compared to what the current forward curve suggests, putting downward pressure on Q3 prices.

The report further stated that gas demand was suppressed throughout 2023, falling 16% versus the five-year average, also amid mild weather and lower demand from power generation. However, and according to the report, 2024 had started off strong as colder weather swept through Europe supporting distribution demand, with industrial demand maintaining its recovering trend, increasing 12% year-on-year in January and around 6% in February.

The report forecasts that household gas demand in Europe looks set to rise by 12 billion cubic metres (bcm) in 2024, under normal weather conditions, while industrial demand will increase by 5.5 bcm as the EU economy rebounds in the second half of the year. The report however added that 9 bcm less gas would go into power generation reducing the impact of residential and industrial demand growth, with the overall European demand increase expected to hit 9 bcm.

In 2025, the same price increase would be expected notwithstanding the number of new LNG supplies that will come onstream in 2024 and 2025, as the LNG year-on year supply growth will be limited to 15 mmtpa in 2025, also as projects will take time to ramp up while some legacy LNG supply will continue to decline. Which also means that LNG imports to Europe will only increase by 4.5 mmtpa in 2025.

Concluding the report states that Russian gas flows through Ukraine will be the key dynamic to watch in 2025. And that If the end of the transit agreement between Russia and Ukraine results in a complete stop of flows, Europe could see storage levels limited to 93% by the of summer 2025, providing upside to prices, and the reverse of course if the agreement finds its transit flows through Ukraine, apparently putting European prices under severe pressure.


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